(Reuters) - European shares dropped on Tuesday, as Italian banks came under pressure after the cabinet approved a 40% windfall tax on lenders, while sticky inflation print from Germany and weak China trade data further dented risk sentiment.

By 0707 GMT, the pan-European index was down 0.3%.

Italian banks such as (BIT:) (OTC:) and UniCredit (BIT:) fell more than 5% after Deputy Prime Minister Matteo Salvini said the 40% levy on banks' extra profits will feed items such as a reduction of the tax wedge, tax cuts and financial support to holders of mortgages on first homes.

Italy's banking-heavy slid 1.4%, while dropped 1.8% after ratings agency Moody's cut credit ratings of several small- to mid-sized U.S. banks and said it may downgrade some of the biggest lenders in the United States.

index fell 0.4% after data showed inflation eased to 6.5% in July, but was in line with economist expectations.

China-exposed miners and automakers fell after data revealed imports and exports in the world's second-largest economy fell much faster than expected in July, threatening growth prospects and heightening pressure on Beijing to provide fresh stimulus.

Shares of (LON:) (OTC:) slumped nearly 3% after the global miner said its earnings had halved in the first half. (This story has been corrected to say inflation eased, not accelerated, in paragraph 5)