Banks drag European shares to lower close

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange December 7, 2009.

LONDON (Reuters) - European shares closed lower on Monday, with British lenders the biggest fallers on concerns Britain was still mulling a windfall tax on bankers' bonuses.

The pan-European FTSEurofirst 300 .FTEU3 index of top shares closed down 0.5 percent at 1,020.61 points.

The index is up 58 percent since it reached a record low in early March and is up nearly 23 for the year.

"I sort of feel we have had the first phase of the bull market, the next phase is going to be a bit of a struggle," said Mike Lenhoff, strategist at Brewin Dolphin.

"The markets are going to be preoccupied now on when the central banks are going to change their message on interest rates. It will have a dampening influence on how much progress these equity markets can make and how sustainable it is."

There has been growing concern that interest rates could rise sooner than had been anticipated, following last week's surprisingly optimistic U.S. jobs report.

Banks featured among the worst performers. HSBC (HSBA.L), Barclays (BARC.L), Lloyds Banking Group (LLOY.L) and Credit Suisse GSGN.VX were down 1.5 to 4.1 percent.

A UK government source told Reuters on Friday a windfall tax on banks was one revenue-raising option being considered by finance minister Alistair Darling for his pre-budget report on Wednesday.

SIEMENS FALLS

General industrial stocks were under pressure. Siemens (SIEGn.DE) lost 1.6 percent after Morgan Stanley downgraded the stock to "equal-weight" from "overweight."

Shares in Bayer (BAYGn.DE) were down 1.4 percent after it ruled out delivering data to U.S. regulator FDA on its anti blood-clotting pill Xarelto this year and postponed publishing more details until 2010.

On the upside, BASF BASF.DE was up 1.5 percent after its CEO, Juergen Hambrecht, in an interview said the company would earn more than it expected in the fourth quarter due to an increase in orders.

Daimler (DAIGn.DE) gained 1.3 percent after it said it expects fourth-quarter sales volume at its Mercedes-Benz passenger car division to rise considerably in the fourth quarter.

"Stocks are looking fairly valued, though there's still some of the stimulus down the track. You could argue both ways," said Andy Lynch, fund manager at Schroders.

However, he added that volumes were low, "and it's very difficult to read anything into the movements today."

Across Europe, the FTSE 100 .FTSE index was down 0.2 percent, Germany's DAX .GDAXI fell 0.6 percent and France's CAC 40 .FCHI was 0.2 percent lower.

(Additional reporting by Brian Gorman; Editing by Jon Loades-Carter)