* FTSEurofirst 300 falls 0.2 pct, Euro STOXX 50 down 0.6 pct

* Signs of Chinese slowdown hits mining stocks

* Banks fall with Lloyds hit by compensation charge

* Markets seen rangebound in March, Italy still a worry

By Sudip Kar-Gupta

LONDON, March 1 (Reuters) - European shares edged lower on Friday, dragged down by weaker bank and mining stocks, and traders expected equities to stay in a tight range this month with uncertainty in the wake of Italy's inconclusive elections denting sentiment.

The pan-European FTSEurofirst 300 index closed down 0.2 percent at 1,168.64 points while the euro zone's blue-chip Euro STOXX 50 index fell 0.6 percent to 2,616.75 points.

The STOXX Europe 600 Basic Resources index, which includes mining stocks, was the worst-performing equity sector as it fell 1.9 percent on fresh signs of an economic slowdown in China, which is the world's biggest metals consumer.

The European banking sector retreated 1.3 percent, with British bank Lloyds falling 2.2 percent after setting aside 1.5 billion pounds ($2.3 billion) to compensate customers who were mis-sold loan insurance.

Rupert Baker, a European equity sales executive for Mirabaud Securities, said stock markets may not resume their upwards trajectory until April.

"March is normally rangebound before it improves for another push higher in April," he said, adding that investors were still buying shares on days when the market fell due to expectations of a gradual rally on equities over the course of 2013.

"Are we still buyers on the dip? Yes, more or less. The corporate sector has had some fairly decent results," he said.

According to Thomson Reuters Starmine data, 60 percent of the companies on the pan-European STOXX 600 index to have reported fourth-quarter results so far have produced results that have either beaten or met market forecasts.

One such company was French defence electronics group Thales , which posted higher profits and pledged to boost margins, leading its shares to surge 12.3 percent to finish at the top of the FTSEurofirst 300 index.

ITALIAN WORRIES LINGER

However, Italy's political deadlock - which could impact the debt-ridden country's plans for economic reforms - remained a concern.

The country's benchmark FTSE MIB equity index fell 1.5 percent on the first day of a new Italian financial transaction tax, which is set to hit trading volumes and could make the Milan stock market less attractive.

Strategists at Barclays expected a coalition government would eventually be formed in Italy while pledges from the European Central Bank (ECB) to protect the euro currency from the region's debt crisis would also prevent any major market fall.

Nevertheless, Barclays advised investors to protect themselves against a near-term fall on the blue-chip Euro STOXX 50 over the next month by buying "put" options, which allow investors to bet on a future fall in the market.

It advised taking out a Euro STOXX 50 "put" with a strike price of 2,550 points and an April maturity - implying a near 3 percent fall on that index by next month.

Evidence of Europe's problems, with Spain also at risk of needing a state bailout, was provided on Friday with data showing that Germany and Ireland were the only two euro zone members with factory output growth last month.

Richard Edwards, who heads London-based trading and research firm HED Capital, recommended that investors favour German equities over Spain and Italy.

"I would keep selling rallies on Spain and Italy and keep buying dips in Germany," he said.