LONDON A 4-percent drop for Barclays (BARC.L) led European banking shares lower on Monday after Qatar sold its remaining warrants in the bank, helping pull blue chip share indices off highs hit last week.
Barclays fell 4.1 percent, while the STOXX Europe 600 banking index .SX7P, lost 1.1 percent, making it the top sectoral decliner, after Qatar Holding said late on Sunday it had monetized its remaining holding of 379 million units of Barclays warrants - instruments that convert into shares.
There were some caution related to talks aimed at sealing the release of another tranche of aid for Greece, but analysts said upbeat signs from officials bode well for a positive result from a meeting of euro zone finance ministers.
"It (the Barclays news) has created some short-term technical selling pressure on the sector, rather than anything more fundamental," said Robert Parkes, equity strategist with HSBC Securities.
"We have been positive on the banking sector as we think it is undervalued and we are starting to see a stabilization in earnings relative to the wider market."
Vitor Constancio, vice president of the European Central Bank, said he expected lenders to reach a deal on further aid for Greece on Monday although he said it would not include any debt write-off for its public creditors - a sticking point previously in the talks.
Euro zone ministers and their deputies have held numerous meetings and conference calls over the last two weeks to decide how Greek debt could be cut to a more sustainable level, but a lack of agreement has prevented the release of bailout funds.
Andy Lynch, European fund manager at Schroders that manages about $300 billion, said he was not concerned about Greece as its lenders would muddle through to find a solution, adding that Monday's weakness was mainly the result of profit-taking after the previous week's strong gains.
The FTSEurofirst 300 .FTEU3 fell 0.6 percent to 1,103.77 points by 0707 EDT after advancing for five straight sessions and surging 4 percent last week, the best performance since early December last year.
"Last week was very good for the markets and it seems that investors are taking a breather ahead of the euro zone meeting. There is some caution, but it is also clear that Greece's lenders will not allow the country to fail," said Koen De Leus, senior economist at KBC in Brussels.
"We are on the optimistic side. Investors should have stop-losses in place to minimize their losses, but should be prepared to buy the dips."
Equity strategists remained positive on the market's outlook in the medium-term on expectations that uncertainty related to the euro zone debt situation and the U.S. "fiscal cliff" of scheduled tax rises and spending cuts from 2013 would abate.
Strategists at Morgan Stanley upgraded European equities to "attractive" from "neutral" in a 2013 outlook, expecting double-digit percentage growth from the MSCI Europe index with earnings revisions beginning to improve and global economic indicators appearing to be troughing.
Societe Generale strategists said European stocks should remain 'fairly resilient' next year, saying the market was likely to benefit from an increase in risk appetite when policy uncertainty was lifted on Greece and Spain.
However, for those investors who wanted to minimize risks associated with the "fiscal cliff" and refinancing needs of Spain and Greece, BNP Paribas recommended taking advantage of eight-month low option prices to buy short-term protection.
Investors' focus remained on Europe, with tens of thousands of Italians rallying across the country over the weekend to protest against austerity measures, and separatists in Spain's Catalonia winning regional elections on Sunday.
The euro zone's blue chip Euro STOXX 50 .STOXX50E index dropped 0.6 percent at 2,540.96 points after surging 5.3 percent last week, the best weekly performance in nearly a year.
"The index is seen finding support at 2,450 from where it bounced back on several occasions in the past weeks," Petra von Kerssenbrock, technical analyst at Commerzbank, said.
"We still have abundant liquidity in the market and the positive ground tone prevails. It faces a massive resistance at 2,600, which proved to be a resistance in March 2012 and was a support back in July 2011. It will be difficult to break the level but we could go there and test it."
Among other sharp movers, German steelmaker ThyssenKrupp (TKAG.DE) fell 4.9 percent following a downgrade by Credit Suisse and a report it may need until next year to sell steel mills in the U.S. and Brazil.
(Additional reporting by Jon Hopkins and Francesco Canepa in London and Blaise Robinson in Paris; editing by Patrick Graham)