European shares fall for third day, Peugeot slides
* Peugeot slumps after writedown, possible capital hike
* FTSEurofirst 300 falls for third day in a row
* Fed tapering worries continue to hold back equities
* Use weakness to buy stocks on dip - Psigma Invt Management
* Back domestically focused European stocks-UBP fund manager
LONDON, Dec 12 (Reuters) - European shares fell for the third day in a row on persistent uncertainty over when the United States may scale back economic stimulus measures, and carmaker Peugeot dropped more than 10 percent.
Several traders said that while they saw European stock markets making little headway before the U.S. Federal Reserve's meeting next week, they did expect some recovery towards the end of 2013 and into 2014.
The pan-European FTSEurofirst 300 index, which fell 0.7 percent on Wednesday, declined by a further 0.74 percent to 1,246.98 points by 1202 GMT.
Data showing a surprise fall in euro zone October industrial output also put pressure on shares.
French carmaker Peugeot slumped more than 10 percent after news of a writedown and that it was considering a capital increase.
The FTSEurofirst 300 index has retreated about 5 percent after climbing to a 5-year high last month, although the index remains up by about 10 percent since the start of 2013.
The prospect that the Fed may start to taper its "quantitative easing" (QE) programme this month has led some investors to sell off equities to book profits on the rally so far this year.
Scott Meech, co-head of European equities at Union Bancaire Privee, said uncertainty over QE may prevent equities making much further progress this year. He advised avoiding European shares which are heavily exposed to emerging markets as speculation was leaning towards the Fed starting to taper soon.
"I would choose domestically focused European companies in the coming months and avoid those with emerging market exposure," he said.
TIME TO BUY ON THE DIP?
The U.S tapering situation has led to a pick-up in U.S. bond yields, which in turn has lifted the U.S. dollar and hit emerging markets currencies and stocks.
Meech said that even if European stock markets lost ground in December, they would then recover and rise further in 2014 as a gradual recovery in the broader European economy buoys the region's stock markets.
Tim Gregory, chief investment officer at Psigma Investment Management, also said he would use any weakness in the global equity markets over the coming week to buy.
"We think there is a chance that Fed tapering will begin next week. However, whether it is December, January or March is less important than the fact that the Fed feels able to make a start on withdrawing QE," said Gregory.
"Equities remain our asset class of choice on a five-year view so we would prefer to adopt a strategy of buying dips over selling rallies," he said.
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