Europe stocks inch lower; banks, insurers retreat

* FTSEurofirst down 0.1 pct after dipping below '08 close

* Drugmakers gain; GlaxoSmithKline up on deal news

* Banking, insurance shares lose ground

By Atul Prakash

LONDON, June 23 (Reuters) - European equities inched lower by midday on Tuesday after falling sharply in the previous session, with weaker banks and insurers outpacing positive pharmaceutical and automobile stocks.

Investors traded cautiously on worries that a recovery in the global economy could take longer than expected. Analysts said that the market has paused for a breather following an impressive rally after hitting a record low in early March.

At 1118 GMT, the pan-European FTSEurofirst 300 .FTEU3 index of top shares was down 0.1 percent at 836.61 points after briefly falling below the 2008 close of 831.97 points. But it is still up about 30 percent since hitting a lifetime low in March.

Financial shares were among top decliners on the index, with Standard Chartered (STAN.L), Barclays (BARC.L), Lloyds (LLOY.L), Societe Generale (SOGN.PA) and Credit Agricole (CAGR.PA) down 1.1-3.9 percent.

However, UBS (UBSN.VX) jumped 3.5 percent after the New York Times reported the U.S. Justice Department may drop a case aimed at forcing the Swiss bank to reveal the names of 52,000 wealthy American clients suspected of tax evasion. [ID:nLN515704]

"There is nervousness around the market and these sorts of pullbacks and volatility are likely to continue," said Henk Potts, equity strategist at Barclays Stockbrokers in London.

"The market needs tangible proof that the economic data is truly getting better," he added.

The market continued to get mixed economic indicators. Key surveys showed that a recovery from a severe recession in the euro zone's services sector stalled in June as consumers remained nervous, but factories fared better. [ID:nLN873343]

A Chinese central bank official said that the country's economy was headed in the right direction, but the foundations of the recovery were not yet solid, adding to a chorus of voices cautioning against expectations of a rapid rebound from the global crisis.

The U.S. unemployment rate -- at 9.4 percent, already its highest in about 25 years -- is likely to hit 10 percent in the next couple of months, a White House spokesman said on Monday. [ID:nN22515501]

"After the massive three-month rally that sent all major indexes significantly higher, we are now in the middle of the long-awaited pullback," Close Brothers Seydler said in a note.