European Shares Retreat On China Move; Glaxo Dips

European shares retreated at midday on Wednesday, dragged lower by China's move to cool its booming market.

European shares retreated at midday on Wednesday, dragged lower by China's move to cool its booming market, while British pharmaceutical group GlaxoSmithKline fell following a brokerage downgrade.

Oil companies felt the pinch of Tuesday's sharp drop in oil prices. BP Plc shed 1.1 percent, Total SA fell 1.3 percent and Royal Dutch Shell Plc dipped 1.5 percent.

By 1045 GMT, the pan-European FTSEurofirst 300 index was down 0.88 percent at 1,587.23 points.

"Investors are definitely nervous on China," said Philippe Gijsels, senior equity strategist at Fortis Bank in Brussels.

"The market is overbought at this point. We've been rising quite aggressively since March, so it's not a surprise to see a pause here. But overall on the long term, we're still in an upside trend."

Europe's benchmark index, up 7 percent so far this year, reached its highest level in 6-1/2 years at 1,611.2 last Thursday.

China's Ministry of Finance raised stamp duty on share transactions to 0.3 percent from 0.1 percent as it seeks to curb speculation in a market that has soared more than 60 percent so far in 2007.

The news, that came out late in the U.S. trading session on Tuesday, limited the gains on Wall Street, and sparked a sell-off on the Shanghai Composite Index, which tumbled 6.5 percent on Wednesday.

Beijing's move comes three months after a surprise sharp drop in Chinese stocks that had major ripple effects on stock markets around the world.

"People will be cautious until we get the most important economic data of the week: the U.S. payroll figures," Gijsels said.

U.S. job figures for May will be released on Friday, and economists surveyed by Reuters estimate that 130,000 non-farm payroll jobs were created during the month, while the jobless rate is expected to remain unchanged at 4.5 percent.

HIT BY DOWNGRADE

GlaxoSmithKline slipped more than 2 percent, making it the biggest negative weight on the FTSEurofirst 300.

Merrill Lynch downgraded the stock to "sell" from "neutral", saying it did not see growth in the near term for the company's diabetes drug Avandia, citing heart-risk scares.

Glaxo's drop also weighed on Britain's FTSE 100 index, which was down 0.9 percent. Elsewhere in Europe, Germany's DAX shed 1 percent, while France's CAC 40 lost 0.9 percent.

Among the few stocks moving into positive territory, Air France-KLM, Europe's biggest airline, gained 2.4 percent following the announcement of its pending inclusion on the CAC 40.

Gaz de France added 1.2 percent, the top gainer on the CAC 40, on a Le Figaro report which said utility group Suez is lobbying the new French government and president to revive the stalled merger plan between the two groups.

Suez eased 0.1 percent.