European shares recover ground after Cyprus blow
* FTSEurofirst 300 down 0.7 percent
* Banks lead market lower on jitters over Cyprus
* M&S advances on report of Qatari bid interest
By Tricia Wright
LONDON, March 18 (Reuters) - European shares pared early losses on Monday as policymakers raced to revise a radical bailout plan for Cyprus that threatened to spark a fresh leg to the euro zone's crisis.
In a departure from previous EU practice that depositors' savings are sacrosanct, Cyprus and international lenders agreed at the weekend that savers in the island's outsized banking system would take a hit in return for the offer of 10 billion euros ($13.07 billion) in aid.
But Cyprus's parliament delayed a vote on the measures and officials said the government was working to soften the blow to smaller savers. Germany, believed to have pushed for the deal to make depositors pay, said it was open to a change in how the move was structured.
After falling more than one percent in early trades, the FTSEurofirst 300 was down 0.7 percent at 1,194.68 by 1223 GMT, led by a 2.2 percent decline in banking stocks - some of the strongest performers in recent months.
While the news dealt a sharp blow to the index, some analysts took the falls in their stride since it is trading at lofty levels - and is therefore seen as ripe for a pullback. Efforts by policymakers to revise the plan as well as the view Cyprus is a one-off case, supported the market.
The FTSEurofirst 300 last week reached a 4-1/2 year peak, stepping into "overbought" territory on the 14-day Relative Strength Index, a momentum indicator.
"I think a lot of people were waiting for a pullback anyway. We got one on the open and that's attracted some buyers," Angus Campbell, head of market analysis at Capital Spreads, said.
"Caution might be the order of the day for the next few sessions... It may be a little too early to go heavily long the market now in case things get a little bit cheaper."
Gerhard Schwarz, head of equity strategy at Baader Bank, meanwhile, said: "It's not a showstopper what we see in Cyprus for now. The critical point will be if we see some contagion into the bigger markets."
"We could certainly see some further sell-off as the week progresses, but I think we are talking here... a 3-5 percent move on the downside and not a 10 percent correction. I would wait a little bit... (before buying into the market)."
British retailer Marks & Spencer bucked the market trend, jumping 8.5 percent in trading volume nearly four times its 90-day daily average, after a report of Qatari bid interest.
The Sunday Times newspaper said the Qatar Investment Authority wanted to assemble a consortium to mount an 8-billion-pound takeover of Britain's biggest clothing retailer.
M&S declined to comment.
However, it emerged on Monday that Qatar Holding, the investment arm of the Gulf state's sovereign wealth fund, was not considering a bid for the retailer, according to a source close to the fund.
Despite the denial from the source, some analysts think M&S, whose core women's clothes business has been losing market share, could be vulnerable to a private equity bid.
"Trading and profits are under pressure, with nothing to show yet for the big investments made in online systems and warehousing and the changes in the clothing team," said independent retail analyst Nick Bubb.
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