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UPDATE 1-European shares head towards their worst week this year

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    • STOXX 600, blue chips down 1.2 pct
    • STOXX set for 2.8 pct weekly loss
    • Eurostoxx volatility jumps to four-month high
    • Sinking metals prices drive miners down

    (Follow European and UK stock markets in real time on the Reuters Live Markets blog on Eikon - see cpurl://apps.cp./cms/?pageId=livemarkets)

    A sell-off in heavyweight basic resources stocks prompted a third day of losses for European shares on Friday, putting them on track for their worst week this year.

    Volatility jumped and the pan-European STOXX 600 .STOXX fell 1.2 percent, taking weekly losses to 2.8 percent, its worst since early November 2016..

    Euro zone stocks and blue-chips .STOXX50E also dropped 0.7 percent, while the miner-heavy FTSE .FTSE underperformed and was down 0.8 percent.

    The losses have been triggered by rising tensions between the United States and North Korea.

    "Investors have been anticipating that we are due a correction of some sort," said Paul Harper, European equity strategist at DNB.

    "To some extent they have been expecting something and have just been looking for the catalyst. But if investors are positioned for this already, you are going to need something more to give it significant legs as some might be tempted to buy the dip," he added.

    The VSTOXX .V2TX , the main European gauge of equity investor anxiety, jumped 26 percent to 23.8, a near four-month high, though it remained near historically depressed levels.

    "It's a big move in the context of what we've seen in the course of this year, but in a bigger picture perspective the levels are still relatively moderate," said Harper.

    Overnight, Asian and U.S. equity markets extended their sell-off as the war of words between the Washington and Pyongyang intensified.

    On Friday basic resource stocks .SXPP dropped 2.6 percent to a month low as Chinese base metal prices fell.

    Rio Tinto RIO.L , Glencore GLEN.L , Antofagasta ANTO.L , Anglo American AAL.L , BHP Billiton BLT.L and Arcelormittal all fell 2.3 to 4.1 percent.

    Falling crude prices made oil & gas stocks .SXEP a weight too, dropping 1 percent with Tullow Oil TLW.L the top faller.

    Banks .SX7P also fell 2 percent, putting the index on track for its worst week in nine months.

    Drugmaker Galapagos GLPG.AS was the sole bright spot, up 3.2 percent as brokers upgraded their view on the stock which outperformed on Thursday as well after a successful drug trial.

    Biotech firm Novozymes NZYMb.CO meanwhile fell 3.3 percent after its second-quarter results disappointed and the firm cut its full-year guidance, citing weaker currencies.

    UK mid-cap Dixons Carphone DC.L was the worst-performing, falling 7.6 percent after a top-rated Exane BNP Paribas analyst cut the retailer by two notches to "underperform", citing concerns about its mobile business.

    With most companies having reported second-quarter earnings, a divergence between the performance of euro zone corporates whose earnings are dented by a stronger euro, and the broader pan-European index, was increasingly visible.

    Overall, earnings growth for MSCI Europe companies was tracking 24 percent, Thomson Reuters data showed, while MSCI Euro zone companies were seeing 16 percent earnings growth for the second quarter. Around 80 percent of companies have reported.

    "Results have been fairly OK, but the reaction to the results has been on the soft side ... which perhaps suggests investors are increasingly nervous that valuations are getting to unsustainable levels," said DNB's Harper.

    European volatility jumps on political tensions    http://reut.rs/2hRr9aO  
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