European shares stall after new year rally

LONDON, Jan 11 (Reuters) - 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."