UPDATE 1-Trade worries, poor data slam European shares
* Trade gloom hits German manufacturing and services - PMI
* Brexit crisis, trade war worries weigh on risk sentiment
* Auto sector at three-month lows
* Merlin Entertainments up on shareholder activism (Adds quote, details; updates prices)
By Medha Singh
May 23 (Reuters) - European shares sank on Thursday as the latest round of U.S.-China trade friction and a soft set of business surveys sapped investors' risk appetite, while British Prime Minister Theresa May faced growing pressure to quit.
By 0811 GMT, the pan-European STOXX 600 had dropped 0.8%, with Germany's traditionally trade-sensitive DAX down 1.11%.
That tracked a slide in Asian shares to four-month lows, as investors worried the U.S.-China trade feud was fast turning into a technology-focused cold war.
The latest evidence of the impact the conflict is having on Europe's largest economy came in the flash purchasing managers surveys, which showed activity in Germany's services and manufacturing sectors fell in May.
Euro zone business growth was also weaker than expected in May while Germany's closely-watched Ifo business sentiment survey indicated that morale fell more than expected.
"With both Brexit uncertainties and US-China trade tensions threatening to inflict more damage on the EU economy, any post-election reprieve ... would likely prove short-lived," said Jameel Ahmad, global head of currency strategy and market research at online trading platform FXTM.
The European auto sector index, among the most exposed to the trade tensions, led losses with a 2.7% fall to a three-month low, while mining shed 1%.
British chip designer ARM was the latest to suspend ties with net gear and phone maker Huawei, joining a list of companies that are complying with a U.S. blockade of the Chinese firm. The technology sector also slipped 1.35%.
Investor angst over the intensifying trade spat between the world's two biggest economies, which threatens to dent growth worldwide, has knocked around 4% off the benchmark index this month.
In London, the blue-chip FTSE 100 slipped 0.6% and its exporter-heavy components shrugged off the benefit of a slide in the pound to four-month lows.
The failure of May's final Brexit gambit, added to polls predicting a trouncing for her Conservatives in European elections on Thursday, have drawn new moves from within the party to force her out. A report from The Times said May is expected to announce her departure from office on Friday.
"Although the large-cap FTSE 100 index has benefited from the recent weakness of sterling, we believe the risk-return outlook for UK stocks has become less favorable," said Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note.
Top of the STOXX 600 index was Merlin Entertainments , up 4.5% after activist shareholder ValueAct urged the Madame Tussauds owner to go private and said the company could be valued about 20% more than its current price.
Among all European sectors, only the healthcare index, considered a defensive play in time of political or economic uncertainty, eked out a small gain.
Shares of Daimler, Commerzbank, trading ex-dividend, were down sharply. (Reporting by Medha Singh and Agamoni Ghosh in Bengaluru; Editing by Andrew Cawthorne)
