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* STOXX 600 index ends down 0.9 pct, down 7 pct year-to-date
* Lloyds leads fallers in weak bank sector
* Shell, Dialog down as earning updates disappoints
* But Neste touches record high on earnings beat
By Sudip Kar-Gupta and Danilo Masoni
LONDON/MILAN, July 28 (Reuters) - European shares fell on Thursday with Lloyds leading a weaker financial sector lower and disappointing earning updates from firms including oil major Royal Dutch Shell also weighing.
The pan-European STOXX 600 index fell 0.9 percent, while the FTSEurofirst 300 index slid 1 percent.
Lloyds fell 5.8 percent after the British bank warned of a likely drop in demand caused by Britain's vote last month to quit the European Union, adding that it would accelerate cost-cutting.
Despite an unexpected second-quarter net profit, Credit Suisse fell 5 percent, reflecting the cautious note struck by its CEO Tidjane Thiam, who is trying to turn around Switzerland's second-biggest bank.
Even though the bank boosted its core capital to within its own target, some analysts remain unconvinced.
"We believe Credit Suisse will still need to raise another round of capital next year," Bernstein, who rates the stock "underperform", said in a note.
Shell declined by 2.9 percent after it reported a profit slump, while Dialog dropped 3 percent after the German supplier of Apple cut its 2016 sales outlook.
The STOXX 600 has rebounded by around 10 percent from a low point reached on June 27 after the shock Brexit vote, but it remains down by around 7 percent so far in 2016.
Equity strategists at Credit Suisse said that many investors remained pessimistic about European equities.
The bad debts of Italian banks remain a cause of concern, and the Credit Suisse strategists said Brexit had reawakened fears among U.S clients over the euro zone, with valuations at levels last seen during the Greek economic crisis of 2011.
"Outflows are close to record highs, valuations are back to Greek crisis lows on P/E relatives, yet earnings and economic momentum are showing signs of relative stability," they wrote.
Roche Brune Asset Management fund manager Gregoire Laverne saw some positive signs from the corporate results season.
Finnish refiner Neste surged 9.9 percent to a record high after its second-quarter profit beat forecasts, while engineer Rolls Royce jumped 13.5 percent after forecasting an improvement in profit.
"European companies are generally looking to be on the right sort of path. Even if sales are not necessarily increasing, margins are increasing," said Laverne. (Reporting by Danilo Masoni; editing by Mark Heinrich)