Drugmakers drag European shares to lower close

LONDON (Reuters) - European shares closed lower on Tuesday, retreating from a 15-month high, with drugmakers falling after France canceled flu shot orders overshadowing gains in banks on talk that Barclays (BARC.L) may lift its outlook.

The FTSEurofirst 300 .FTEU3 index of top European shares closed down 0.03 percent at 1,060.42 points in choppy trade, having been as low as 1,055.69 and up as much as 1,063.05.

The index surged 1.4 percent on Monday, its first session of the year, to close at its highest since October 2008, as upbeat U.S. economic data helped the market extend its 26 percent rally of 2009.

"I think the underlying trend for the short term is still up. Corporate confidence is very high and earnings are continuing to be revised up. The picture now is for a more solid type of recovery outlook," said Mike Lenhoff, strategist at Brewin Dolphin.

"But the housing figure from the U.S. did put a bit of dampener on everything. If that housing market gives in the U.S. then it would be seriously bad news for the recovery."

Drugmakers took the most points off the index after France canceled over half the flu vaccines it ordered to combat the H1N1 flu virus.

GlaxoSmithKline (GSK.L), Roche (ROG.VX) and Sanofi-Aventis (SASY.PA) slipped 1.3 to 2.4 percent.

Another negative for the sector was a proposal from Britain's health ministry to increase the use of cheap generic medicines, marking the latest move by governments worldwide to cut back on rising drug bills.

Across Europe, the FTSE 100 .FTSE index was up 0.4 percent, Germany's DAX .GDAXI was down 0.3 percent and France's CAC 40 .FCHI was 0.03 percent lower.

CADBURY FALLS

Chocolate maker Cadbury CBRY.L fell 3.2 percent after Warren Buffett's Berkshire Hathaway said it may vote against an improved bid for the UK company from Kraft (KFT.N).

Nestle (NESN.VX), which ruled itself out of a bid war over Cadbury, was down 2.4 percent.

Investor sentiment was initially knocked after pending sales of previously owned U.S. homes fell more than expected in November because of the end of a rush to beat the initial expiration of a popular tax credit, a survey showed.

However, new orders at U.S. factories rose 1.1 percent in November in their third straight increase and inventories grew for the second month in a row, according to government data.

Banks featured among the top risers. Barclays (BARC.L) gained 6.3 percent, with traders citing market talk that it could lift its outlook.

HSBC (HSBA.L), Banco Santander (SAN.MC), National Bank of Greece (NBGr.AT) and Royal Bank of Scotland (RBS.L) were up 1.1 to 10.3 percent.

"It's a little pause, but overall this is the start of a brand new year, people really want to believe in a good 2010 for stocks and this sentiment is fueled by strong macro (economic) data and the return of M&A fever," said David Thebault, head of quantitative sales trading at Global Equities in Paris.

(Additional reporting by Blaise Robinson in Paris; Editing by David Holmes)