Banks, commodities drag European shares lower

                                
 * FTSEurofirst 300 index down 0.6 pct
                                
 * Banks fall; Lloyds share issue reports
                                
 * Commods down; crude off six week high
                                
 
                                
 By Joanne Frearson
                                
 LONDON, Aug 10 (Reuters) - European shares were lower in
early trade on Monday, following a four-week rally, with banking
and commodity stocks the biggest fallers on the main index.
                                
 At 0839 GMT, the pan-European FTSEurofirst 300 <.FTEU3>
index of top shares was down 0.6 percent at 944.58 points.
Europe's benchmark index has risen around 16 percent since July
10, and is now up 13.6 percent in 2009. It has surged 46 percent
since hitting a low in early March.
                                
 "A time has to come when the market has to give up a little
bit of ground. (Stocks) have done incredibly well, much better
than most of us had expected ... You would have thought there
would be a time when they gave up some ground ... maybe today
this is what they are doing," said Mike Lenhoff, strategist at
Brewin Dolphin.
                                
 Banks took the most points off the index, though stocks
within the sector were mixed.
                                
 Lloyds Banking Group <LLOY.L> fell 4.7 percent after the
Sunday Times reported it may consider a multibillion pound share
issue as part of a partial withdrawal from the government's
asset protection scheme. [ID:nL918768]
                                
 British banks Barclays <BARC.L> and Royal Bank of Scotland
<RBS.L> were down 1.7 and 7 percent, respectively.
                                
 UBS <UBSN.VX> was 1.4 percent lower after U.S. tax talks
were extended until Aug. 12.
                                
 Deutsche Bank <DBKGn.DE> gained 0.8 percent after China's
Hua Xia Bank <600015.SS>, which it partly owns, posted earnings
in line with analysts' expectations. [ID:nSHA234147]
                                
 
                                
 COMMODITY STOCKS SLIP
                                
 Energy stocks were lower as crude <CLc1> dropped from a
six-week high hit on Friday to fall just under $71 a barrel.
                                
 BG Group <BG.L>, BP <BP.L>, Royal Dutch Shell <RDSa.L> and
Total <TOTF.PA> slipped 0.8-1.4 percent.
                                
 Miners were also lower. Rio Tinto <RIO.L> fell 1 percent
after China stepped up espionage allegations against the world's
second-largest iron ore miner. [ID:nSYD479075]
                                
 Anglo American <AAL.L>, Antofagasta <ANTO.L>, BHP Billiton
<BLT.L>, Eurasian Natural Resources Corporation <ENRC.L>, Rio
Tinto <RIO.L> and Xstrata <XTA.L> were down 1.3-2.9 percent.
                                
 Insurers were the top performers. UK life insurer Friends
Provident <FP.L> gained 7.7 percent after it said it had agreed
to talks with suitor Resolution <RSL.L> after receiving a
revised takeover offer valuing it at almost 1.9 billion pounds
($3.2 billion). [ID:nLA156736]
                                
 "The way of the price reaction today shows that the market
is expecting a favourable outcome," a trader said.
                                
 Prudential <PRU.L> was up 2.9 percent following reports in
the Sunday newspaper it is set to buck the trend in the sector
and raise its dividend. [ID:nL94521]
                                
 Publicis <PUBP.PA> was up 3.2 percent after it struck a $530
million deal with Microsoft <MSFT.O> to buy the Razorfish ad
agency and boost its position in digital communications, the
world's third-largest communications group said on Sunday.
[ID:nL9724772]
                                
 Across Europe, the FTSE 100 <.FTSE> index was down 0.6
percent, Germany's DAX <.GDAXI> was 0.8 percent lower and
France's CAC 40 <.FCHI> was down 0.6 percent.
 (Editing by Will Waterman)