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* FTSEurofirst 300 down 0.1 pct, Euro STOXX 50 down 0.2 pct
* About 2.3 bln euros wiped off Deutsche Bank's market cap
* Banks still Europe's best sector in 2014, up 5.6 pct
* Peugeot sags 11 pct on details over looming capital hike
* Further brisk inflows going into Europe equities -EPFR
By Blaise Robinson
PARIS, Jan 20 (Reuters) - European stocks inched lower in thin trade on Monday, slipping from 5-1/2 year highs as Deutsche Bank's surprise quarterly loss prompted investors to cash in recent sharp gains on banking stocks.
Shares in Germany's biggest lender, which had not been due to release results until Jan. 29, sank 5.7 percent, wiping 2.3 billion euros ($3.1 billion) off its market capitalisation.
The bank unveiled a sharp drop in fixed income trading revenues and heavy litigation and restructuring costs, which prompted it to warn about a challenging 2014.
Commerzbank fell 4.4 percent, Banco Popolare dropped 3.1 percent and Credit Suisse shed 1.6 percent.
"The figures of Deutsche Bank are surprising and there's no end to be seen, and therefore we are kind of critical about the conditions of the banking sector," said Oliver Roth, head trader at Close Brothers Seydler.
"I think we have seen the bottom of the crisis, but I don't see the end of the crisis. Therefore I see much more potential in other sectors than banks."
Despite the day's sell-off in the sector, the STOXX bank index is still up 5.6 percent in 2014, Europe's best sector performance so far this year.
At 1530 GMT, the FTSEurofirst 300 index of top European shares was down 0.1 percent at 1,343.30 points, while the euro zone's blue-chip Euro STOXX 50 index was down 0.2 percent at 3,148.78.
Trading volumes were light as U.S. markets were closed for a public holiday.
Struggling French car maker PSA Peugeot Citroen also figured among the top losers on Monday, sinking 11 percent after a source told Reuters the group's board has approved a dilutive 3 billion euro capital increase in which China's Dongfeng Motor Co. and the French government will take a significant stake.
Shares in the struggling automaker are among the most shorted across Europe, with 16.7 percent of the company's shares out on loan, according to data from Markit.
Odey Asset Management LLP and D.E. Shaw feature among the hedge funds with the biggest short positions on Peugeot, according to recent filings with French regulator AMF.
Around Europe, UK's FTSE 100 index was flat, Germany's DAX index down 0.4 percent, and France's CAC 40 down 0.2 percent.
Despite European stocks moving sideways in the past few sessions, investment inflows to the region remained strong, boosted by expectations of a pick-up in economic growth.
According to data from EPFR Global, Europe equity funds absorbed over $4 billion in net investment inflows in the seven-day period to Jan. 15, recording their fourth-biggest weekly total on record.
The brisk inflows into Europe equity funds represented nearly half the collective flows going into all equity funds around the world, according to EPFR. A pick-up in the region's macro indicators and a more dovish European Central Bank have prompted investors to scoop up European shares.
"The market has risen on hopes of a durable turnaround in growth for the euro zone. Recent data has signalled such trends for the U.S. and UK economies, but for the euro zone, it's been mostly optimistic forecasts, not real macro data," FXCM analyst Vincent Ganne said.
"Thursday's PMI for France, Germany and the euro zone should shed some light, with the focus on France, where data has been confusing recently."
Europe indexes in 2014: