* FTSEurofirst 300 index closes down 1.5 pct
* Index has worst weekly loss since August 2011
* Citi still sees gains this year for European stocks
* Citi forecasts STOXX 600 at 400 points by end-2016 (Updates prices)
By Sudip Kar-Gupta
LONDON, Jan 8 (Reuters) - European shares fell on Friday, with lingering worries about China causing a major regional equity index to suffer its worst weekly loss since August 2011.
The pan-European FTSEurofirst 300 index ended down 1.5 percent, leaving it with a loss of around 7 percent over the course of the week.
That marked its worst weekly performance since early August 2011, when it fell nearly 10 percent during the euro zone’s sovereign debt crisis.
Equity markets had received a lift earlier in the day from a rise in major Chinese stock indices, after regulators suspended the circuit breaker mechanism that halted trading twice this week. The shutdowns were blamed for exacerbating the sell-offs they were intended to limit.
Some investors said China’s ability to manage its markets had been damaged. A fall in the yuan also raised concerns about a slowdown in China, the world’s second-biggest economy.
European stocks failed to hold onto an initial move higher after strong U.S. jobs data. Although the data highlighted momentum in the world’s biggest economy, it also showed a fall in average hourly earnings.
“Average hourly earnings are not growing, and that’s slightly disappointing,” said Hantec Markets’ analyst Richard Perry.
Francois Savary, chief investment officer at Geneva-based Prime Partners, said the U.S. growth was strong enough to offset the worries about China to a certain extent.
Jonathan Stubbs, European equity strategist at Citigroup, said that he expected European shares to rise this year, thanks to signs of economic recovery in the region and higher corporate profits, but markets would remain volatile.
Stubbs forecast the pan-European STOXX 600 index to end 2016 at 400 points. This would mark a gain of around 17 percent from its Friday closing price of 341.35 points, but Stubbs expected the ride along the way to be a bumpy one.
“We still expect equity returns to be driven by modest growth and some re-rating this year, but volatility is likely to remain near-term,” said Stubbs.
Today’s European research round-up (Additional reporting by Danilo Masoni in Milan; Editing by Andrew Roche)