European shares take a breather after two-week rally

After two week-rally, European stocks dip early on Monday after key FTSEurofirst 300 index hits strong resistance point

European stocks dipped early on Monday as investors took a breather following a two-week rally and a key index hit strong resistance, although the retreat could be short-lived as recent central bank moves boost risk appetite.
At 0820 GMT, the FTSEurofirst 300 index was down 0.1 per cent at 1,119.19 points, after reaching a 14-month high on Friday.
The euro zone's blue chip Euro STOXX 50 index fell 0.3 percent to 2,587.58 points, after running into strong resistance just below 2,611 points on Friday, a peak hit in mid-March.
The euro zone bank index - up 50 per cent since ECB chief Mario Draghi said in late July that the central bank was ready to take all necessary measures to preserve the euro - was down 0.4 per cent.
Spain's Banco Santander dropped 1.1 per cent and Italian bank Intesa Sanpaolo fell 1.2 per cent.
"There is still good upside potential for stocks as we are re-pricing the 'non-break up' of the euro zone. We've just started to realise all the downside that came from the debt crisis," Louis Capital Markets trader Jerome Troin-Lajous said.
"Now, the main signal we need that would fuel this rally won't be coming from the economic outlook, it will come from the investment flows. A lot of foreign investors have been strongly 'underweight' European stocks and should start to switch out of bonds and out of U.S. equities and into European stocks."
Europe equity funds posted their biggest inflow since early May in the seven-day period through last Wednesday, according to data from EPFR Global. That signals a rise in appetite for European shares as tensions surrounding the euro zone debt crisis ease following the ECB's plan to buy Spanish and Italian debt.
Italy equity funds recorded their biggest weekly inflow since the current financial crisis began. In contrast, investors pulled more than $200 million out of UK equity funds, according to EPFR Global, which tracks conventional and alternative funds.
Around Europe, UK's FTSE 100 index and Germany's DAX index were both down 0.1 per cent, and France's CAC 40 was 0.3 per cent lower.
"The strong liquidity should boost stocks in the short term, it's a question of flow. But in the longer term, it's quite alarming to see these actions from central banks because it means that the slowdown in global economic growth is serious," Barclays France director Franklin Pichard said.
"On top of that, commodity prices are on the rise, which slows down growth in developed countries and creates inflation in emerging economies."
After a three-month rally, the Euro STOXX 50 is up 11.5 per cent this year, the DAX has gained 25 per cent, the CAC is 12.8 per cent higher, and Italy's FTSE MIB is up 9.5 per cent.
UK shares have underperformed, with the FTSE 100 gaining only 5.9 percent this year.
Shares in Hennes & Mauritz were the biggest losers among European blue chips, sliding 2.1 per cent after the world's second-biggest fashion retailer reported an unexpected drop in like-for-like sales in August.
Food major Unilever added 1.3 per cent, boosted by a rating upgrade to 'buy' from 'neutral' by UBS.