PARIS European shares inched down on Friday as signs of rising concerns among U.S. Federal Reserve members about the central bank's quantitative easing program prompted investors to book a portion of recent strong gains.
Investors were also cautious ahead of U.S. non-farm payrolls data for December, due later in the session, despite Thursday's forecast-beating jobs data for the private sector.
At 4:06 a.m. ET, the FTSEurofirst 300 .FTEU3 index of top European shares was down 0.04 percent at 1,162.15 points, retreating from near-two-year highs hit in the previous session, while the euro zone's blue chip Euro STOXX 50 .STOXX50E index was down 0.1 percent, at 2,698.16 points.
"The market is getting quite 'overbought', both U.S. and European stocks, and there's a risk of a sell-off if the payrolls figures are disappointing," FXCM analyst Nicolas Cheron said.
"A lot of fund managers are being sucked in, buying the market because of fears of missing the rally. We're set for a correction wave sometime in the next two to three months. It might not start in the short term, but it's definitely coming."
The FTSEurofirst 300 hit its most "overbought" level in three years this week, with its 14-day relative strength index (RSI) rising to 72.4, a signal that the market is ripe for a pull-back in the short term.
Minutes from the Fed's December policy meeting released on Thursday showed some voting members of the Federal Open Market Committee were increasingly worried about the potential risks of the Fed's asset purchases on financial markets.
U.S. non-farm payrolls data, due at 8:30 a.m. ET on Friday, is expected to show employers added 150,000 jobs last month.
On Thursday, the ADP National Employment Report showed the private sector added 215,000 jobs last month, beating economist forecasts, but FXCM's Cheron warned it doesn't necessarily means that Friday's broader payrolls data will also be better-than-expected.
"Despite common belief, the correlation between ADP figures and payrolls data has been pretty low historically," he said.
Analysts at Societe Generale, however, are more bullish, betting on the creation of 225,000 jobs last month, well above the consensus.
"Labor market conditions probably improved substantially in the final month of 2012 ... we expect risky assets to rally intraday due to the positive surprise element," the analysts wrote in a note.
Cyclical mining shares were the top losers on Friday, with Randgold Resources (RRS.L) down 2.9 percent and Lonmin (LMI.L) down 1.5 percent.
Big pharma stocks, seen as defensive plays, gained ground, with GlaxoSmithKline (GSK.L) up 0.4 percent, Novartis NOVN.VX up 0.4 percent and AstraZeneca (AZN.L) up 0.2 percent.
Around Europe, UK's FTSE 100 index .FTSE was down 0.1 percent, Germany's DAX index .GDAXI down 0.1 percent, and France's CAC 40 .FCHI down 0.2 percent.
(Reporting by Blaise Robinson; Editing by Toby Chopra)