* Asian stock markets : tmsnrt.rs/2zpUAr4 * Easyjet highlights pain of airlines during lockdown * Talk of distressed selling by hedge funds as shorts squeezed * Dollar gets safe-haven bid as euro backtracks LONDON, Jan 28 (Reuters) - Shares wiped out their gains in Europe for the year early on Thursday, soured by a sell-off on Wall Street, no end in sight to pandemic lockdowns and a squeeze in short positions. The pan-European STOXX benchmark was down 1.8% at 395.77 points, its lowest since December. London, Paris and Frankfurt all fell. “The initial optimism of early this year is starting to dissipate because of the prospects of tighter pandemic restrictions for longer, and concerns over ‘vaccine nationalism’,” said Michael Hewson, chief market analyst at CMC Markets. The European Union, locked in a public spat with vaccine producer AstraZeneca, wants a shortfall in the company’s supplies to the bloc topped up from production in Britain. Easyjet shares fell 2.3% after the airline warned it would fly no more than 10% of 2019’s capacity, highlighting the plight of sectors hit by lengthy lockdowns. The move by investors into “reflation” trades at the start of the year on then-brighter growth prospects now looked premature, analysts said. “Amid concerns about the speed of vaccine distribution and the COVID-19 impact on economic growth recovery, cyclical credit looks most likely to underperform,” UniCredit analysts said. Wall Street on Wednesday suffered its biggest one-day percentage drop in three months as the S&P500 index and Nasdaq Composite fell 2.6%. Some pointed a finger at U.S. retail investors who had forced a massive squeeze on hedge funds that held short positions in stocks such as GameStop. “We could see much more choppiness and much more volatility. We have a bit of a perfect storm heading into the month end, which is weighing on equity markets, but I don’t think at the moment we are in a place where it’s going to come crashing off,” Hewson said. On the data front, analysts said the focus will be on German inflation figures and fourth-quarter U.S. economic growth. Yields on the 10-year U.S. Treasury bond fell below 1% for the first time in three weeks overnight in a further sign of a shrinking demand for risk. ASIA WEAKER Asian shares slid on Thursday while the safe-haven dollar rallied as Wall Street’s sell-off and delays in coronavirus vaccines provided an excuse to book profits on recent gains. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 2%, with valuations looking stretched after the index rose more than 6% just this month. Japan’s Nikkei fell 1.5%, its sharpest drop since October, and Chinese blue chips lost 2.7% as liquidity tightened before the Lunar New Year holidays. South Korea fell 1.7%, led by losses in Samsung after it reported earnings. Even the tech darlings were not immune. Facebook dropped despite reporting earnings well above expectations. Apple Inc also handily beat forecasts, but its shares lost 3% after the bell. Dealers noted the market had focused more on a downbeat economic outlook from the Federal Reserve overnight than on its pledge of continued policy support. The safe-haven U.S. dollar gained, with its index up at 90.771 from a January low of 89.206. The euro fell to $1.2093 amid reports the European Central Bank felt markets were under-pricing the risk of more rate cuts. The bounce in the dollar kept gold prices soft around $1,837 an ounce. Global demand concerns restrained oil prices despite a drop in U.S. crude stocks. U.S. crude fell 34 cents to $52.51 a barrel. Brent crude futures dropped to $55.50.