Updates prices throughout, adds analyst comment

By Johann M Cherian and Tharuniyaa Lakshmi

July 8 (Reuters) - European shares slid to a one-week low on Wednesday after U.S. President Donald Trump said the initial agreement to end the war with Iran was over, rekindling worries about the Middle East conflict and higher oil prices.

The pan-European STOXX 600 index .STOXX was down 1.6% at 636.08 points by 0839 GMT and was on track for its biggest one-day drop since the height of the Iran conflict in mid-March.

Most sectors were lower, with defence stocks .SXPARO down 3.5%, while a 5% jump in crude prices lifted the energy sector .SXEP by 2%.

Higher energy prices weighed on airlines including Air France AIRF.PA and Wizz Air WIZZ.L, which lost more than 5% each, while auto stocks .SXAP fell 3.3%. Lufthansa LHAG.DE dove 5.4% after Citigroup downgraded the stock to "sell" from "neutral".

Asked before a NATO summit in Turkey, hours after the U.S. and Iran traded fire and Washington revoked a licence allowing Tehran to sell oil, Trump said, "As far as I'm concerned, it's just a waste of time dealing with them."

"It's still a major setback just as nations around the world have been breathing a sigh of relief that a longer-term resolution looks set to be on the table," said Susannah Streeter, chief investment strategist at Wealth Club.

"You're likely to see downbeat sentiment spread. The surging oil prices have sparked worries again about persistent inflation, with the Middle East tinderbox reigniting again."

Markets had been paring expectations for another interest rate hike by the European Central Bank before the end of this year, and policymakers had flagged that growth and inflation risks were more balanced following the recent ceasefire.

However, following Tuesday's developments traders are now pricing in 38 basis points of rate hikes this year, LSEG-compiled data showed, up from 25 bps on Tuesday.

Spain's IBEX index .IBEX lost the most among regional bourses, down 2.3% to a three-week low after Trump said he had ordered Treasury Secretary Scott Bessent to cut off all trade with Spain, calling Madrid a "terrible partner" in NATO.

Investors also kept a close watch on technology stocks globally, which have had a shaky start to July after a strong AI-driven June quarter.

South Korean equities .KS11 closed 20% below a record high reached in June, confirming a bear market. The tech-heavy Nasdaq .IXIC closed below its 50-day moving average overnight, indicating weak short-term momentum.

European technology stocks were mixed, with chip equipment maker ASML ASML.AS marginally higher, while chip company Aixtron AIXGn.DE fell more than 2%.

Among individual stocks, Bahnhof BAHNb.ST jumped 16.5% after telecom operator Telenor TEL.OL agreed to buy a controlling stake in the Swedish broadband provider in a deal valuing it at 6.1 billion Swedish crowns ($629.7 million).