* Pan-European FTSEurofirst 300 down 2.1 pct
* China-exposed stocks among top decliners
* Valeo sinks despite guidance upgrade
By Atul Prakash and Lionel Laurent
LONDON, July 27 (Reuters) - European equities dropped to a two-week low on Monday and headed for their fifth straight daily decline as worries over China’s growth prospects overshadowed some forecast-beating corporate results.
A slightly better-than-expected July reading from the German IFO business climate index helped ease some of the sell-off in early trading. But shares fell further following a weaker start on Wall Street on growth concerns in China and after Shanghai shares suffered their biggest one-day loss in eight years.
The FTSEurofirst 300 index was down 2.1 percent at 1,530.28 points by 1421 GMT after falling to 1,529.42, the lowest level in two weeks. It has fallen more than 5 percent in a week, but is still up 12 percent this year.
Sectors exposed to China - the world’s biggest metals consumer and a big market for automobiles, luxury goods, oils and industrial goods - were the worst hit. The European autos , basic resources, energy and industrial goods sectors fell 1.0 to 2.5 percent.
“Investor sentiment is deteriorating because of signs of a slowdown in China. Other signals like German car exports to the country and China’s electricity output are also disappointing,” UniCredit strategist Christian Stocker said.
“We are advising our clients to hold their positions in the defensive sectors but sell autos and basic resources companies.”
Across Europe, benchmark share indexes in London, Paris and Frankfurt were also down 0.9 percent to 2.1 percent. However, JPMorgan strategists stayed overweight on euro-zone equities saying improving economic fundamentals were likely to take the centre stage again.
Investors focused on the Fed’s two-day meeting from Tuesday for hints about the timing of a rate hike. Expectations of a rise in rates have helped the dollar, hitting commodities that are generally priced in the greenback. A stronger dollar makes commodities costlier for other currency holders.
“Although the Fed has two explicit mandates - inflation and unemployment - they are going to be wary of what’s happening in the wider global environment, including in China. That will no doubt influence the scale of the U.S. rate rises,” Oliver Wallin, investment director at Octopus Investments, said.
“There has been suspicion for some time that all is not as good as it seems in China. We are ‘underweight’ on emerging markets and have a feeling that there is more value to be found in the developed markets.”
Chinese shares tumbled more than 8 percent on Monday as an unprecedented government rescue effort to prop up valuations abruptly ran out of steam. The slump came after a survey showed on Friday that China’s factory sector contracted in July by the greatest amount for 15 months.
Shares of Swiss bank UBS slid 1.5 percent in line with the wider market sell-off despite reporting a forecast-beating set of quarterly profits. French car parts maker Valeo fell 4.6 percent despite raising its profit outlook and playing down the impact of a China slowdown.
Mid-cap platinum miner Lonmin slumped 11 percent to a record low after Citi, Credit Suisse, JP Morgan and Deutsche Bank cut their price targets for the stock.
Theme-park operator Merlin Entertainment dropped 3.6 percent after warning about annual profits following the temporary closure of its Alton Towers theme park after a roller-coaster crash in June. (Editing by Tom Heneghan)