* Lisbon and Milan stock markets hit by weak economic data
* Portuguese and Italian economies contracted in Q1
* DAX briefly hits record high, then falls back
* FTSEurofirst 300 retreats from 6-year highs
By Sudip Kar-Gupta
LONDON, May 15 Slumps in the stock markets of Lisbon and Milan, after data showed that the Portuguese and Italian economies had shrunk, knocked back European shares from multi-year highs on Thursday.
Italy's FTSE MIB equity index fell 2.3 percent while Portugal's smaller PSI-20 market declined by 2.4 percent in late session trading, making the two worst-performing major European stock markets.
Together, they contributed to send the pan-European FTSEurofirst 300 index down by 0.2 percent to 1,365.27 points, pushing the FTSEurofirst off a 6-year high of 1,372.81 points reached earlier in the day.
Data on Thursday showed that the Portuguese and Italian economies contracted in the first quarter of this year, in sharp contrast to the fortunes of Germany - Europe's economic powerhouse - whose economy grew.
The solid growth in Germany briefly lifted the country's DAX stock market to a record high of 9,810.29 points, before the DAX then settled back to slip 0.3 percent to 9,723.74 points.
Since the start of 2014, the DAX has risen around 2 percent - underperforming gains of 9 percent on the Italian FTSE MIB and of 6 percent on Lisbon's PSI-20.
However, HED Capital head Richard Edwards said he preferred the German equity market over that of southern European countries, mainly because of Germany's better economic prospects.
"I would look to buy the DAX on dips and sell Spain, Italy and Portugal on rallies," he said.
ECB RATE CUT?
Over the past week, European stock markets have been boosted by increasing signs the European Central Bank (ECB) will cut rates and announce other stimulus measures in June.
Both Berkeley Futures associate director Richard Griffiths and Intertrader Chief Market Strategist Steve Ruffley said the DAX could hit a record high of 10,000 points later this year, as a weaker euro currency could help German exporters.
Yet other investors pointed to the mixed European economic data on Thursday as highlighting the risk of a volatile stock market environment over the coming months.
"This morning's unexpectedly weak eurozone GDP figure prompts fresh fears for the area's recovery," said Saxo Capital Markets UK chief executive officer Torben Kaaber.
"My view is that the ECB will eventually need to go ahead with a stimulus package which will include interest rate cuts, but it may be too little, too late," he added.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up (Additional reporting by Blaise Robinson and Francesco Canepa; Editing by Larry King, John Stonestreet, Raissa Kasolowsky)