European equities stalled on Friday, with weak economic data from the United States and concerns about the scope for more stimulus in China giving investors the excuse to lock in profits on a new year rally to multi-month highs.
The U.S. trade deficit unexpectedly grew in November, suggesting that fourth quarter gross domestic product (GDP) growth in the world's biggest economy would likely be lower than previously expected.
The FTSEurofirst 300 Index provisionally closed 0.2 percent lower at 1,162.70 points, retreating from Thursday's two-year peak of 1,170.29.
"We got some fantastic returns in the early days of this year. If we look at valuation and momentum indicator it seems like this rally is reaching the ceiling. Looking at the earnings season, we think there is more downside risk than upside risk on earnings," Peter Garnry, strategist at Saxo Bank, said.
"If you take a tactical position around this, you would either underweight European equities or sell out. If you are really aggressive you could go short, and the DAX could be a good way to do that."
In Asia, shares fell on Friday as a pick-up in Chinese inflation prompted profit taking and dampened the chance for further policy easing as the world's second-largest economy recovers. As a result mining stocks in Europe showed some losses on Friday with BHP Billiton, Kazakhmys and Rio Tinto firmly in the red.
The technology sector was the major gainer across European markets as Nokia continued to rally after a trading statement on Thursday showed decent sales for its new Lumia handsets. Nokia shares closed 2.25 percent higher on Friday.
Meanwhile, the German economy ministry said on the Friday that performance declined in the fourth quarter of last year as weak demand from Europe caused industry to reduce production. It also added that the economy could "revive significantly" in 2013 in its monthly report.
U.K. manufacturing data was also released showing output fell 0.3 percent month-on-month in November, whereas a broader reading of industrial output (including energy and mining) grew 0.3 percent for November compared to a decline the month before.