European Shares Languish as Banks Drop,Miners Gain

European shares traded lower on Friday.

European shares traded lower on Friday, with weaker banks and oil producers outweighing stronger miners amid economic growth and interest rates concerns.

Among major movers, takeover talk boosted shares in German utility RWE, while Rio Tinto gained as speculation of a bid from BHP Billiton resurfaced. Volvo rose after its results beat forecasts.

"The macroeconomic environment for European equities remains favourable. The price/earnings valuation in Europe is currently near the highs for the last five years," said Gerhard Schwarz, HVB equity strategist.

"In the short term, we think this environment harbours further scope for a consolidation, but we see no risks of a major setback given the good medium-term opportunities for an increase in valuation."

By 1104 GMT, the FTSEurofirst index of top European shares was down 0.4 percent at 1,566.3 points, after earlier reaching 1,554.1, its lowest level in three weeks.

France's CAC 40 fell 0.8 percent, while Germany's DAX slipped 0.8 percent and Britain's FTSE 100 traded flat.

U.S. markets suffered their steepest slide in two months on Thursday, hit by disappointing retail sales and a widening trade deficit, with the Dow Jones industrial average closing down 1.1 percent. Tokyo's Nikkei fell 1 percent.

BANKS DRAG

Banks pulled the market lower, with Fortis down 2.7 percent, despite posting a smaller-than-expected quarterly profit drop, as investors worried how it would fund its share of a consortium bid for ABN AMRO.

Fortis's consortium partner Royal Bank of Scotland lost 1.4 percent, while Deutsche Postbank fell 2 percent. Standard Chartered bucked the trend to gain 5 percent on bid talk.

Oil producers proved lacklustre, with BP down 0.6 percent and Royal Dutch Shell 1.1 percent lower despite London Brent crude gaining 1 percent.

"It's a mixture of disappointing data and interest rate fears but all elements are in place for equity markets to be well supported. If anything, the macro backdrop in Europe is getting better," said Franz Wenzel, strategist at AXA Investment Managers.

Mining stocks helped cap losses, with Rio Tinto jumping 6 percent on resurgent talk of a bid from its rival BHP Billiton, whose shares added 0.8 percent. Xstrata gained 2 percent and Antofagasta rose 1.7 percent.

German utility RWE ranked as a standout gainer, adding 5 percent after a radio report France's EDF was preparing to buy the group. EDF denied any contact with German authorities on RWE, and RWE declined to comment.

Among companies reporting earnings, truck maker Volvo gained 5 percent after a smaller-than-expected fall in first-quarter pre-tax profits as investors shrugged off worries about future orders.

German tourism group TUI fell 0.8 percent after its first-quarter operating loss widened, while Ahold dropped 0.8 percent after reporting a slight dip in first-quarter group sales.