European shares post best quarterly rise in 10 yrs

                                
 * FTSEurofirst 300 falls 0.5 pct after drop in Chicago PMI
                                
 * FTSEurofirst 300 still posts best quarter in nearly 10 yrs
                                
 * For up-to-the-minute market news, click on [STXNEWS/EU]

                                
 By Dominic Lau
                                
 LONDON, Sept 30 (Reuters) - European shares fell on
Wednesday after U.S. regional business activity contracted in
September, but the main FTSEurofirst 300 <.FTEU3> index still
managed to post its best quarterly rise in nearly 10 years.
                                
 The FTSEurofirst 300 <.FTEU3> index of top European shares
ended 0.5 percent lower at 997.56 points, dragged down by banks
and oil producers.
                                
 The index was up 17.3 percent in July-September, its biggest
quarterly rise since December 1999. It rose nearly 16 percent in
the previous quarter but was still down 39 percent from a peak
in mid-2007.
                                
 Banks <.SX7P>, which have rallied 171 percent since March,
were among the stand-out losers after the Institute for Supply
Management-Chicago business barometer fell to 46.1 in September
from 50 in August.
                                
 Economists had forecast the index at 52.0. A reading above
50 indicates expansion in the regional economy.
                                
 BNP Paribas <BNPP.PA>, HSBC <HSBA.L>, BBVA <BBVA.MC>, UBS
<UBSN.VX>, Deutsche Bank <DBKGn.DE>, Commerzbank <CBKG.DE> and
Societe Generale <SOGN.PA> were down 1.2-3 percent.
                                
 "In the near term, there is some vulnerability because the
market did get quite overbought in the last week or two," said
Ronan Carr, European equity strategist at Morgan Stanley in
London.
                                
 Although the FTSEurofirst 300 is near its 12-month highs,
the 14-day momentum and the 14-day Relative Strength Index have
been trending down over the past week, a sign that the market
could be overbought technically.
                                
 "On a six-to-nine-month view, the rally can go a little bit
further. We do expect the recovery in growth to continue to come
through and at the same time, monetary and fiscal policy will
stay very loose -- positive backdrops for equities," Carr said.
                                
 Data, however, showed recovery would be erratic, with U.S.
private employers cutting a bigger-than-expected 254,000 jobs in
September. The U.S. economy contracted at a slower pace than
previously thought in the second quarter.
                                
 Oil producers in Europe were also weaker on concerns over
the patchy economic recovery. BP <BP.L>, Royal Dutch Shell
<RDSa.AS> and Total <TOTF.PA> lost 0.4-1.3 percent.
Insurers lent some support, with Legal & General <LGEN.L> up
6.1 percent on continued speculation it could be a takeover
target. Italian insurer Generali <GASI.MI> said it had no
interest in Legal & General, denying media reports and market
speculation that have named it as a potential buyers.
                                
 Peers Aviva <AV.L>, Standard Life <SL.L>, RSA Insurance
<RSA.L> and ING Groep <ING.AS> put on 2.7-3.9 percent.
                                
 Across Europe, Britain's FTSE 100 <.FTSE> lost 0.5 percent
but still posted its best-ever quarterly rise. Germany's DAX
<.GDAXI> dropped 0.7 percent and France's CAC 40 <.FCHI> eased
0.5 percent.
                                
 Volumes on the FTSEurofirst 300 were about 120 percent of
the 90-day daily average volume.

                                
 OUTLOOK
                                
 Leading global investors cut equity holdings to their lowest
level since February and boosted bonds and cash in September, a
Reuters poll showed, as they grew nervous about adding more
risky assets after the broad rally. [ID:nLAG003792]
                                
 A separate Reuters survey showed major world stock markets
would likely stutter to the end of the year following the strong
push in March. [ID:nLT561454]
                                
 British retailer Marks & Spencer <MKS.L> lost 3.4 percent,
with some analysts saying that better-than-expected sales and
profit margins were factored into a recent rally in its shares,
while a downgrade in its cost guidance was not.
                                
 Also on the downside, Bayer <BAYGn.DE> shed 3.1 percent
after UBS downgraded the chemicals and drug conglomerate to
"neutral" from "buy" on valuation grounds.
                                
 Belgian pharmaceutical group UCB <UCB.BR> fell 3.3 percent.
The company increased a six-year convertible bond offer to 450
million euros ($656 million) from 350 million euros, and said it
could raise as much as 500 million euros to refinance debt.
                                
 Hedge fund firm Man Group <EMG.L>, however, soared 7.5
percent after it said slowing outflows helped lift assets to an
estimated $43.8 billion at end-September, at the top end of
forecasts.
                                
 Smiths Group <SMIN.L> rose 6 percent after the technology
company, which makes products ranging from security scanners to
medical equipment, beat forecast for underlying pretax profit.
 (Editing by Rupert Winchester)