UPDATE 2-Faltering PMIs add to a lacklustre week for European stocks

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* German, French services sectors lose momentum

* FTSE 100 uninspired by surge in UK retail sales

* Ireland’s Kingspan jumps on upbeat forecast

* IHG, Accor surge on merger hopes (Updates to market close)

Aug 21 (Reuters) - Downbeat economic data that pointed to a stalling of the euro zone recovery hit regional stock markets on Friday, with the pan-European STOXX 600 index marking weekly losses as coronavirus cases rose across the continent.

The German DAX reversed early gains to trade 0.5% lower after Purchasing Managers Index (PMI) surveys showed service sector activity unexpectedly came to a near standstill in August, although factory activity rebounded further.

Paris-listed shares fell 0.3% after a worse showing from the French survey, while euro zone blue chips were down 0.4%.

The opening gains proved short-lived, with the wider STOXX 600 index falling 0.2%, but firmer trading on Wall Street on the back of better data helped limit losses into the close.

“Today’s euro zone PMI release confirms that while activity is on the mend, the pace of the recovery is slowing,” Jai Malhi, a global market strategist at J.P. Morgan Asset Management wrote. “It’s no coincidence that the recovery is losing pace as concerns over new (coronavirus) infections have risen.”

The STOXX 600 recorded a 0.9% loss for the week, with growth-linked cyclical sectors such as banks, oil & gas firms and automakers hit hard as several European countries saw a resurgence in coronavirus cases that raised fears of more restrictions on business activity.

London’s exporter-heavy FTSE 100 slipped only 0.2%, supported by a slump in the pound on a mix of bad news on the latest Brexit negotiations and gains for the U.S. dollar.

Travel and leisure stocks were the biggest sectoral gainers, up 3.1%, with France’s Accor and British rival InterContinental Hotels (IHG) surging for a second day on reports of a possible merger.

Irish building and insulation materials firm Kingspan jumped 8.9% after its chief executive said the company saw significant pent-up demand post-lockdown.

Swiss drugmaker Novartis rose 0.5% after it won U.S. health regulator’s approval to repurpose an 11-year-old blood cancer drug against multiple sclerosis.

Dutch-based payment-processing company Adyen fell 3.7% as several top executives each sold 15% of their stakes in the company, cashing in 693 million euros ($822 million) in all. (Reporting by Sruthi Shankar in Bengaluru; Editing by Arun Koyyur and Catherine Evans)