Bouygues and Iliad lead European shares down from highs
* FTSEurofirst 300 falls 1.3 pct, off 5 1/2-yr high
* Bouygues, Iliad fall; Numericable spikes on SFR deal
* Raiffeisen slips as Ukraine tensions simmer (Updates with closing prices)
LONDON, April 7 (Reuters) - European equities retreated on Monday after a three-week rally, led down by French companies Iliad and Bouygues on expectations that a failed acquisition bid by Bouygues would hurt the earnings of both.
Bouygues fell 6 percent to 29 euros ($39.85) and Iliad dropped 5.5 percent after Numericable won a bid to acquire Vivendi's SFR telecom unit. Numericable shares spiked 14.8 percent.
Bouygues had been up 12.9 percent on the year, compared with a rise in the Euro STOXX 50 of 3.9 percent.
"We believe that the recent share price outperformance was due to possibility of this transaction going ahead," Olivia Peters, analyst at RBC Capital Markets, said in a note. "We estimate that Bouygues is now worth 27 euros per share, having stripped out the positive impact of the potential merger."
Iliad investors were disappointed because Iliad had agreed to buy the Bouygues mobile network and some spectrum if Bouygues's bid for SFR succeeded.
Iliad's decline was the biggest on the STOXX Europe 600 Technology index, which overall fell 2 percent.
The FTSEurofirst 300 index of top European shares was down 1.3 percent to 1,335.90 points at the close, slipping from a 5 1/2-year high on Friday and posting its biggest decline for a month.
Tech shares followed Friday's decline in U.S. momentum stocks, which are typically high-growth companies, mostly in the tech and biotech sectors. Those shares led the 2013 rally, and investors were anxious about how much further they might fall.
"The tech sector seems to have become overvalued and there is a particular punishment for momentum stocks, which have run strongly ahead the last couple of months and are now taking a beating," said Geneva-based Lorne Baring, managing director of B Capital Wealth Management.
"The weakness could continue in the short term as there is a need for some of these price-earnings multiples to come back to more realistic levels," Baring said.
The European technology index trades at 18.7 times expected earnings in the next 12 months, according to Thomson Reuters Datastream, above a 10-year average of 16.4 times.
The FTSEurofirst 300 fell after posting its third successive week of gains, rebounding 5.3 percent from its March low. It had been knocked back at the end of February amid tension between Russia and the West over Ukraine.
The market is still vulnerable to developments in the region, with Russia-exposed Raiffeisen Bank down 4.1 percent on Monday. It extended the losses after pro-Russian protesters seized arms in eastern Ukrainian cities.
The Euro STOXX 50 Volatility index jumped 10.5 percent, signalling a sharp rise in investor risk aversion. The higher the index - used to measure the cost of protecting stock holdings against market corrections - the lower is investor appetite for risky assets such as stocks.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up
($1 = 0.7277 Euros) (Additional reporting by Atul Prakash in London and Blaise Robinson in Paris; Editing by Larry King)