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UPDATE 1-European shares drop on Italy's political turmoil, healthcare limits slide

Agamoni Ghosh and Shreyashi Sanyal

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* Italian banks tumble after Salvini pulls the plug

* Bayer soars on reports of $8 bln Roundup settlement

* Novo Nordisk up after raising full-year sales outlook (Recasts; Adds comments, updates prices)

Aug 9 (Reuters) - European shares fell on Friday as worries about the stability of Italy's government and ongoing Sino-U.S. trade tensions rattled investors, but gains in healthcare stocks limited losses.

The pan-European STOXX 600 index fell 0.3% with Milan's FTMIB index tumbling 2% after the leader of the ruling League party, Matteo Salvini, pulled his support for the country's governing coalition on Thursday.

Italian government bond yields rose sharply on fears of a snap election and pushed the country's banking index to its lowest since October 2016.

Italy holds Europe's second-largest sovereign debt burden after Greece and the latest uncertainty adds to its fiscal woes as it struggles to rein in its public deficit and a mammoth mountain of debt.

Although the magnitude of the market moves surprised some, anyone following political developments in Italy should not have been completely caught off guard, said Christoph Rieger, rates strategist at Commerzbank.

Investors will now be closely watching Fitch's review on Italy's credit rating later in the day, which is currently BBB, two notches above non-investment grade.

Also weighing on risk appetite was a Bloomberg report, which said that Washington is delaying a decision about licenses for U.S. firms to restart trade with Huawei Technologies, making investors nervous about a ramp-up of bickering in the ongoing trade dispute.

Germany's Hella dropped 4% and weighed on the auto sector, after it posted weak margins in its automotive segment and said it was seeing slowing demand.

Helping to limit losses on the benchmark index was the healthcare sector, boosted by Bayer which soared as much as 11% on a report that said the German company has proposed to pay $8 billion to settle more than 18,000 U.S. lawsuits on its glyphosate-based weedkiller Roundup case.

Shares of Novo Nordisk rose over 1% after the Danish company beat quarterly operating profit forecasts and raised its 2019 sales outlook. (Reporting by Agamoni Ghosh and Shreyashi Sanyal in Bengaluru; Additional reporting by Virginia Furness; Editing by Bernard Orr)