* Stocks lower on reports of German bank fines
* ECB Lautenschlaeger says QE a last resort
* Wall Street set to open lower ahead of earnings
* UK output dips unexpectedly, sterling falls (Updates prices, adds US indicators)
By John Geddie
LONDON, July 8 (Reuters) - Europe's main stock indices and lower-rated government bonds slipped on Tuesday amid reports of new U.S. fines for banks and dimming prospects the European Central Bank will launch an asset- purchase programme.
Wall Street was expected to start down 0.1 percent, as investors continued to hold off from making big bets going into a corporate earnings season that kicks off with Alcoa (NYSE: AA - news) after markets close.
European equity indexes fell for a third consecutive day after reports that Germany's largest lenders were negotiating a settlement with U.S. authorities over their dealings with countries blacklisted by Washington. The talks follow a huge fine for French lender BNP Paribas (Xetra: 887771 - news) .
"These fines add to an existing uncertainty in the banking sector," said Berenberg's senior economist, Christian Schulz, pointing out that the balance sheets of the region's banks are currently under review by the ECB.
At 0945 GMT, the pan-European FTSEurofirst 300 index was down 0.5 percent at 1,380.33. Germany's Dax and France's CAC were also down 0.5 percent, while weaker than expected UK factory output data dragged the FTSE 100 down 0.6 percent.
Shares in German lender Commerzbank (Xetra: CBK100 - news) fell 4 percent as the New York Times reported it could pay at least $500 million in penalties. Its larger competitor Deutsche Bank (NYSE: DB-RI - news) saw its shares slip 1.3 percent.
The ECB has made unprecedented policy moves in recent months to stimulate bank lending and revive the euro zone economy.
But late on Monday ECB Executive Board member Sabine Lautenschlaeger showed the strength of opposition in some quarters to a programme of asset purchases, which she said should be a last resort.
Many economists say such a programme, known as quantitative easing, might not prove as effective as it has in the United States because Europe relies on traditional forms of bank lending more than capital markets. ECB chief Mario Draghi has also said that might be the case.
Berenberg's Schulz said he felt QE should only be used to fight a future sovereign debt crisis stemming from the bloc's fragile states. It was these lower-rated sovereign bonds that struggled on Tuesday, with traders citing Lautenschlaeger's speech.
Yields on 10-year Greek, Portuguese, Spanish, Italian and Irish bonds edged up between 1-7 basis points, although they remain near record lows.
In currency markets, the big mover was sterling, which fell against the dollar after an unexpected dip in British factory and industrial output, although strategists said the data was unlikely to curb the pound's strength for long.
The dollar was largely unchanged against a basket of other major currencies, just nudging into a sixth straight day of gains, as markets waited for minutes on Wednesday of the Federal Reserve's last meeting, which will be scoured for hints on when its policy committee might consider raising interest rates. .
Asia was quiet overnight, with the region's stocks tracking sideways as the earnings season kicked off with disappointing guidance from regional tech heavyweight Samsung.
The U.S. earnings season starts with Alcoa later on Tuesday and dozens of major companies are scheduled to report next week, including numerous Dow components.
Profits are forecast to grow 6.2 percent for the quarter, according Reuters data, but investors see a chance of a return to double-digit growth for the first time in nearly three years.
In commodity markets, gold reversed earlier losses, edging up to $1,323.45 an ounce, having held to a relatively tight $1,305.90 to $1,332.10 range for the past two weeks.
Oil prices extended their recent decline as events in Iraq and Ukraine have so far not led to any serious disruption in flows. Brent LCOc1 dipped 62 cents to $109.62 a barrel and U.S. oil lost 11 cents to $103.42 a barrel. (Editing by Larry King)