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UPDATE 2-Tumbling techs dominate European stocks, despite bank bounce

* STOXX 600 inches lower

* Banks lead gainers before Fed meeting

* Steinhoff breaks 3 days of heavy losses

* But weaker tech, telecoms, utilities weigh (Updates prices, recasts)

MILAN/LONDON, Dec 11 (Reuters) - Persistent weakness in tech stocks outweighed strong financials on Monday, while a climb in the euro dented euro zone markets, leaving the pan-European STOXX 600 index 0.1 percent lower.

Euro zone blue-chips tumbled 0.3 percent as the single currency edged 0.3 percent higher, weighing on its mainly foreign-earning constituents. Britain's FTSE meanwhile outperformed and was up 0.7 percent thanks to a weaker pound.

A rotation out of the highly-valued tech sector, which has gained the most in Europe so far this year, saw investors shift to financials instead.

Chipmaker Dialog Semiconductor was among the biggest fallers, down 3.2 percent, along with software firm Temenos and video games producer Ubisoft.

Also weighing were utilities and telecoms, two sectors which tend to underperform when interest rates rise, making their steady dividend flows less attractive.

Traders said markets would likely remain quiet before the much awaited Fed meeting, which is widely expected to raise rates, a measure that could support banking stocks.

"There is not much major data scheduled to be released today, which makes range-trading the most likely scenario... Also with the FOMC meeting just around the corner many traders might prefer to remain on the sideline for now," said Markus Huber, trader at City of London Markets.

Relief after last week's deal on new global banking rules also helped banks give a boost to European markets.

HSBC was the biggest gainer, up 2.2 percent, while among other heavyweight banks, UBS rose 1.3 percent and Denmark's Danske Bank gained 2.1 percent.

Deutsche Bank fell 0.9 percent, despite its finance chief telling a German paper that it was able to cope with stricter capital rules agreed last week.

Top gainers on the STOXX were South African retailer Steinhoff, which rose 24.4 percent to break three sessions of dramatic losses stemming from its discovery of accounting irregularities, and Altice.

The French telecoms and cable firm jumped 11.1 percent in a slight relief rally. The stock, hammered by concerns over its debt, was still down 50 percent from the start of November.

Oil and gas stocks also supported the index as crude prices rose, with Tullow Oil up 4.1 percent and TechnipFMC up 4.2 percent.

AB InBev reversed early gains to edge 0.1 percent lower after Reuters reported it is among the brewing groups looking to bid for a stake in Vietnam's largest brewer in a $5 billion sale process. (Reporting by Danilo Masoni and Helen Reid; Editing by Keith Weir and Alexander Smith)