UPDATE 2-Banks, telecoms drag European stocks lower after recent rally

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* STOXX 600 pulls back after Monday's strong rally

* Imperial Brands slides after dividend cut, profit warning

* Norwegian fish farmers rise after SalMar outlook

(Updates to market close)

By Sruthi Shankar

May 19 (Reuters) - European shares lost some ground on Tuesday after a rally in the previous session, as falls for euro zone banks and telecoms stocks countered optimism from a stimulus plan for the European Union.

After rising as much as 0.5% at the open, the pan-European STOXX 600 .STOXX gradually shed gains to close 0.6% lower.

Euro zone stocks .STOXXE also fell 0.7%, despite an early boost from France and Germany's calls on Monday for the creation of a 500 billion ($547 billion) euros recovery fund to offer grants to EU regions and sectors hit hardest by the pandemic. locked in gains after hopes of a potential COVID-19 treatment had driven the STOXX 600 to the biggest single-day gains since March 24 in the previous session. following up yesterday with a bit of consolidation, but I would not read too much into it," said Andrea Cicione, head of strategy at TS Lombard.

Optimism over countries easing coronavirus-induced lockdowns and trillions of dollars in fiscal and monetary stimulus has helped the STOXX 600 rebound more than 26% from lows plumbed earlier this year.

"You can see a shift in sectoral responses in Europe. Financials and consumer discretionary stocks that had been lagging in the recent recovery led gains yesterday. To me, that is a sign that markets are reacting to something differently," added Cicione.

Telecoms stocks .SXKP led sectoral declines, as shares in Telecom Italia TLIT.MI fell 8.6% after Italy's biggest phone group gave no guidance on its 2020 core profit target as it reported a drop in first-quarter earnings. Spanish .IBEX and Italian .FTMIB bourses led regional declines with a 2.5% and 2.1% fall respectively, with some analysts pointing to the lifting of short-selling ban across six EU states hitting shares of euro zone lenders. are some concerns about the profitability and capital outlook for euro zone banks, particularly in the periphery that up until now, restricted the hedge funds' ability play the short in those names," said Russell Quelch, a financials analyst at Redburn said.

Shares in Banco de Sabadell SABE.MC tumbled 11.9% and Bankia BKIA.MC dropped 11%, while Italian lender Banco BPM BAMI.MI fell 7.3%.

However, wealth manager Julius Baer BAER.S rose 5% as it saw a spike in trading volumes boost its first-quarter margins, even though a strong Swiss franc ate into assets under management. .SXAP struggled after data showed European passenger car sales saw a record drop in April, the first full month with restrictions imposed to contain the pandemic across the continent. stocks .FTSE were also hit as shares in tobacco group Imperial Brands IMB.L tumbled 6.5% after its plans to cut its dividend by a third, and a profit warning due to the coronavirus crisis. fish farmer SalMar SALM.OL jumped 9.3% after it reported first quarter operating EBIT above estimates and maintained its 2020 harvest expectations. in peers Grieg Seafood GSFO.OL and Mowi MOWI.OL rose 5% and 2.9%, respectively.