(Adds final prices)
* Pan-European index down 0.04 pct, euro zone index down 0.2 pct
* Deutsche Bank , Barclays fall after updates
* Nokia (HE:NOKIA) surges after strong results
* Telecom Italia rallies on stake purchase
By Danilo Masoni and Atul Prakash
MILAN/LONDON, Oct 29 (Reuters) - European shares fell slightly on Thursday, with banking stocks leading the way after disappointing updates from Deutsche Bank and Barclays, while investors assessed the negative impact of a U.S. rate hike by year-end.
The pan-European FTSEurofirst 300 index .FTEU3 ended down 0.04 percent, while the euro zone's blue-chip Euro STOXX 50 index .STOXX50E fell 0.23 percent.
The U.S. Federal Reserve kept interest rates unchanged on Wednesday but left the door open to a rate hike in December, playing down recent turmoil in global financial markets.
"European investors are taking profit on risky assets as they start to gauge the end-effect of a rate increase," JCI Capital analyst Emanuele Rigamonti said.
Shares in Deutsche Bank DBKGn.DE fell 6.8 percent after Germany's biggest lender warned of two tough years of dividend cuts, pay restraint and thousands of job cuts. ID:nL8N12T36R
"Deutsche Bank is cutting its dividend and the story for the banking sector as a whole is that they are going to struggle to get back to their earlier levels of profitability, given the amount of regulation going on," Clairinvest fund manager Ion-Marc Valahu said.
British bank Barclays BARC.L dropped 6.3 percent following a 10-percent drop in quarterly profits. Saint-Gobain SGOB.PA fell 4.9 percent after saying its results were hit by a contraction in France.
Mining stocks .SXPP fell 1.9 percent, the biggest decline in Europe, as metals prices extended losses. BHP Billiton BLT.L , Glencore GLEN.L and Anglo American AAL.L were all down more than 4 percent.
But there were strong gains in the TMT sector.
The network equipment maker Nokia NOK1V.HE surged 10 percent after reporting stronger-than-expected quarterly profits as growth in China offset weaker demand in other key markets. ID:nL8N12T1U2
Nokia said it would return money to shareholders after acquiring Alcatel-Lucent ALUA.PA which also rose, by 10 percent, as its profitability improved even though it posted a net loss in the third quarter.
Telecom Italia TLIT.MI soared 8.7 percent after French tycoon Xavier Niel built a minority stake, setting up a potential power struggle with largest shareholder Vivendi VIV.PA over the Italian phone group's future.
Danone DANO.PA rose 1.5 percent after China said it would ease family planning restrictions to allow couples to have two children. The company is one of the world's largest manufacturers of baby food and formula milk.
Today's European research round-up RCH/EUROPE