European shares halt rally, KPN sinks
* FTSEurofirst 300 down 0.2 pct, Euro STOXX 50 down 0.6 pct
* Week-long rally halted as investors 'sell the news'
* Volatility index signals drop in investor risk aversion
* KPN tumbles as America Movil drops plans to boost stake
PARIS, Oct 17 (Reuters) - European stocks dipped on Thursday, halting a week-long rally, as investors looked beyond Washington's last-minute deal to avert a debt default to focus on corporate news.
Shares in KPN were among the biggest losers in Europe, sinking 9 percent after America Movil dropped a plan to boost its stake in the Dutch telecom and said it had not decided whether to keep its current position in the firm.
The news dampened consolidation hopes for the sector and knocked shares lower, with Orange down 2.3 percent and Deutsche Telekom down 2 percent.
At 1000 GMT, the FTSEurofirst 300 index of top European shares was down 0.2 percent at 1,263.22 points, after surging 3.4 percent in the past week on expectations the U.S. Congress would reach a deal before the Oct. 17 deadline.
The euro zone's blue-chip Euro STOXX 50 index was down 0.6 percent at 2,998.17 points on Thursday, retreating from a 2-1/2 year high hit on Wednesday.
"People are 'selling the news'," said David Thebault, head of quantitative sales trading at Global Equities.
"The agreement was priced in stocks, and now that it's behind us and political risk has been removed, investors are offloading portfolio protection. That's why the volatility index is falling."
The Euro STOXX 50 Volatility index, Europe's widely-used gauge of investor sentiment, dropped 4.7 percent on Thursday, hitting a three-week low.
The index, known as the VSTOXX, is used to measure the cost of protecting stock holdings against market pull-backs as it usually moves in the opposite direction to cash equities.
Late on Wednesday, the U.S. Congress approved a last-minute agreement to end a partial government shutdown and pull the country back from the brink of a historic debt default that would have had damaging ripple effects across the world.
The deal offers only a temporary fix, however, as it funds the U.S. government until Jan. 15 and raises the debt ceiling until Feb. 7, with the prospect of another bitter budget fight and shutdown early next year.
"Markets are back to business, the U.S. shutdown was just 'noise' at the end," FXCM analyst Vincent Ganne said.
"The spotlight is now on company news as well as on the Fed's next policy meeting and the outlook for its quantitative easing programme."
Around Europe, the UK's FTSE 100 index was down 0.1 percent, Germany's DAX index down 0.5 percent, and France's CAC 40 down 0.5 percent.
On the earnings front, shares in food giant Nestle rose 2.9 percent after saying an improvement in emerging market demand helped boost sales growth in the third quarter, reassuring investors worried by recent negative news from European peers Danone and Unilever.
The world's no. 2 retailer Carrefour rose 3 percent after the group said French hypermarket sales returned to growth in the third quarter while China sales also improved.