* FTSEurofirst 300 down 0.1 pct, Euro STOXX 50 off 0.1 pct
* Retailers Metro, Tesco hit by downgrades
* Telecoms lower; Iliad's 4G offers slammed
* Merck rises after 1.6 bln stg deal for AZ electronics
By David Brett
LONDON, Dec 5 (Reuters) - Retailers and telecoms led European shares lower on Thursday as recent strong economic data heightened worries over the potential for an early winding down of equity-friendly stimulus.
Leading falling stocks was German retailer Metro, which shed 3.4 percent, a decline traders attributed to a Morgan Stanley downgrade to "equal-weight" from "overweight".
"We lower Metro to equal-weight given the share price breached our price target (36 euros) this week and we struggle to identify any near-term catalysts," the bank said in a note.
Retailers were the worst performing sector in Europe, hampered by a 1.8 percent fall in Tesco. The UK heavyweight extended recent declines as brokers and investment banks began to downgrade ratings and forecasts following Wednesday's downbeat update.
Telecoms too felt the pinch with France's Iliad down 3.5 percent after the French government slammed its low cost 4G offers.
Telecom Italia was down more than 2 percent after the Brazilian antitrust watchdog urged Spain's Telefonica to exit its stake in Telecom Italia's subsidiary TIM Brasil.
A notable riser was Germany's Merck, the world's largest maker of liquid crystals for flat panel displays. It gained 3.2 percent after agreeing to buy Britain's AZ Electronic Materials for about 1.6 billion pounds ($2.61 billion) in cash to diversify its offerings.
Rebounding miners and banks, prevented the FTSEurofirst from falling further, with the index down 1.23 points, or 0.1 percent, at 1272.36 points, testing support around the 1,278 level and heading lower for its fourth straight session.
The euro zone blue chip index remained below 3,000 - a level it hadn't reached since October - at 2,990.46 and tested support around 2,977 and 2,955.
The FTSEurofirst is currently trading near six-week lows.
Investors have been spooked by strong economic data, particularly in the United States, that has shortened odds for an early wind-down of the bond-buying stimulus that helped propel the index to five-year highs at the end of November.
"Markets have fallen quite a bit in recent sessions on concerns that U.S. economic data has been coming in stronger than expected, prompting talk of bringing forward tapering," said Jawaid Afsar, sales trader at SecurEquity.
"On top of that, we have non-farm pay numbers tomorrow and the (Federal Reserve) meeting next week. Still quite a few headwinds."
Investors will keep a close eye on U.S. jobless benefits data for the week ended Nov. 30, and U.S. preliminary (second) GDP forecasts for the third quarter, both due out at 1330 GMT.
A further improvement in the labour market could prompt the U.S. central bank to trim its stimulus sooner than expected, a negative scenario for equities, at least in the short-term.
But Luca Paolini, chief Strategist at Pictet Asset Management said the asset class should continue to outperform despite the recent dip in equities.
"An improvement in global economic conditions should eclipse concerns over the looming withdrawal of U.S. monetary stimulus, and lend support to equity markets heading into year-end, traditionally a favourable period for stocks."
The Bank of England and the European Central Bank are likely to hold off on any fresh policy action at their meetings on Thursday. The ECB's new economic forecasts will be scrutinised for signs of prolonged price weakness that could lead it to act again next year, after recently cutting interest cuts in an attempt to kick-start the economy.