(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window)
* German government cuts 2021 GDP forecast
* Markets hit by worries of frothy valuation
* Miners, banks, autos among top decliners
* Fed expected to keep dovish stance (Updates to market close)
By Sruthi Shankar
Jan 27 (Reuters) - European stocks tumbled on Wednesday as extended coronavirus lockdowns drove the German government to slash its growth forecast for 2021, while talk of further interest rate cuts by the European Central Bank hit banking stocks.
After holding largely unchanged in morning trade, the pan-European STOXX 600 .STOXX fell into the red and closed down 1.2% - its biggest single-day percentage fall in over five weeks.
The global mood also soured as investors turned more cautious about mounting coronavirus cases around the world and about stretched stock valuations after retail investors piled into some niche U.S. stocks, causing an eye-popping surge in their market value within just days. German DAX .GDAXI underperformed major regional indexes .GDAXI , falling 1.8%, after the growth forecast for Europe's largest economy was cut to 3% for this year, a sharp revision from last autumn's estimate of 4.4%. stocks bore the brunt of Wednesday's selloff, with miners .SXPP , banks .SX7P and automakers .SXAP falling between 2% and 3.6%.
"It can be a bit bumpy, especially the first half of the year," said Matthias Scheiber, global head of multi-asset solutions at Wells Fargo (NYSE: WFC ) Asset Management in London.
"The lockdown will have a negative impact, but we are generally positive on the value-oriented sectors because from a valuation perspective, they are still cheap."
Euro zone banks .SX7E came under pressure as a member of the ECB's governing council, Klaas Knot, said the central bank could decide to cut its deposit rate further below zero if that proved necessary to keep its inflation target in sight. if any changes were expected to the U.S. Federal Reserve's policy statement, due at 1900 GMT, but Fed Chair Jerome Powell was likely to renew a commitment to ultra-easy monetary policy. metal miner Fresnillo Plc FRES.L slumped 13.0% after it forecast lower gold output for the current year. luxury group LVMH LVMH.PA slipped 0.3% even as booming sales at fashion brands like Louis Vuitton, particularly in China, helped to cushion the impact of the pandemic. medical device maker Ambu AMBUb.CO surged 23.6% after upbeat quarterly results, while German health technology company Siemens (NS: SIEM ) Healthineers SHLG.DE gained 3.1% after it raised its 2021 outlook for sales and earnings. the retail trading fever that has gripped Wall Street, drugmaker Evotec EVTG.DE jumped 9.6% with other heavily shorted stocks like British publisher Pearson PSON.L and cinema chain Cineworld CINE.L soaring without any clear reason. if you look at some of the biggest movers in Europe, they are stocks that hedge funds have been shorting," Mirabaud Securities' Neil Campling said.
"It is difficult to know how exactly this will play out, but obviously with the volatility that we're seeing in individual stocks, it is very dangerous."
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