By Sruthi Shankar

(Reuters) – European stocks were lower on Friday and on course for their worst weekly performance since October, as concerns around the slow rollout of COVID-19 vaccines mount and a retail trading frenzy gripped Wall Street this week.

The benchmark STOXX 600 index dropped 1.0%, set to erase all of January’s gains and end the week down 2.4%

London’s blue-chip FTSE 100 and Germany’s DAX fell by similar amounts, while on Wall Street, S&P 500 futures and Nasdaq 100 futures shed almost 1% each [MKTS/GLOB].

The U.S. stock market, already looking overvalued after a stimulus-led rally last year, has been jolted this week by steep gains in heavily shorted stocks, including Gamestop and AMC Entertainment after retail traders piled into them.

Concerns around the potential economic damage from a new strain of the coronavirus in Europe and delays to vaccine rollouts have also dented sentiment in the past few days.

“We’re postponing the recovery story a little bit because of the lockdown measures and challenges for European growth,” said Joseph Little, global chief strategist at HSBC Global Asset Management, London.

“I’m still optimistic on parts of Europe which have lagged rather badly, economically and in markets. They could begin to perform as the cyclical catch-up becomes more important.”

However, economy-linked stocks of banks, insurers, miners and oil & gas companies were among the worst hit this week as economic data pointed to a stuttering European economy due to tighter restrictions.

Official data showed Germany grew by just 0.1% in the fourth quarter as a second wave of coronavirus cases almost stopped Europe’s largest economy in its tracks after a surging third-quarter recovery.

Meanwhile in France, the economy contracted much less than expected at the end of last year.

In a busy day for earnings, Sweden’s Ericsson jumped 8.1% after reporting fourth-quarter core earnings ahead of market estimates on the back of strong sales of 5G equipment.

Swedish fashion retailer H&M slipped 4.0% after its profit plummeted in the full year through November and warned that the pandemic would hit it hard in the current quarter.

Daimler rose 1.6% after it said a strong fourth quarter helped it post better-than-expected 2020 group operating profit and that it was optimistic for 2021.

European earnings season has been largely positive. Of the 8% of STOXX 600 companies that have reported so far, 78% have topped beaten-down profit estimates, as per Refinitiv IBES data.

(Reporting by Sruthi Shankar in Bengaluru; editing by Uttaresh.V and Bernard Orr)