* FTSEurofirst 300 down 0.2 pct
* Thyssen down 8.8 pct after failing to sell Brazilian mill
* Retailers down; Tesco, Debenhams fall after downgrades
* Spanish utilities fall on reform worries
LONDON, Dec 2 (Reuters) - European shares edged lower on Monday as German steelmaker ThyssenKrupp plummeted after failing to find a buyer for its problematic Brazilian mill and British retailers were hit by margin worries.
Shares in Thyssen fell 8.8 percent, their steepest drop in more than two years, after announcing it had only sold the U.S. plant in its Steel Americas unit, which has cost the German firm almost 13 billion euros ($17.7 billion) over six years.
"Management was not prepared to set out a convincing strategy ... and we believe the inability to dispose of these assets has created additional risk compared to our original base case," HSBC wrote in a note.
"While we think that substantial value remains within (Thyssen), the road to realising this is now less clear to us," the bank added, downgrading its recommendation on the stock to "neutral" from "overweight".
Volume on ThyssenKrupp was 3-1/2 times its average for the past three months, compared to just over half the average for the pan-European FTSEurofirst 300 index.
The German firm was the top faller on the FTSEurofirst, which was down 0.2 percent at 1,302.89 points at 1540 GMT.
Britain's supermarket chain Tesco and department store Debenhams led a selloff in the STOXX Europe 600 Retail sector index after seeing their stocks downgraded by HSBC and Barclays, respectively. Both cited margin worries among the reasons for their cut.
Britain's general retailers have rallied nearly 20 percent since June as the country's economy showed signs of recovery, leaving the sector trading at 16.4 times its earnings, a multiple not seen since 2008.
While the British economy is improving - with job growth pushing a closely watched manufacturing survey to a near three-year high in November - consumer demand remains fragile, forcing retailers into stiff price competition.
"The issue is ... these things priced in a lot of recovery very quickly," Morgan Stanley strategist Graham Secker said.
"A lot of UK domestic cyclical names are actually really expensive."
Analysts said worries about retailers' performance after a seemingly weak Black Friday in the United States were also a factor, while Espirito Santo warned that this month's spending trends called for a cautious stance on British retailers.
UTILITIES IN HOT WATER
Utilities were also a big drag on the index, down 0.8 percent.
Spain's main utilities fell after the Finance Ministry withdrew 3.6 billion euros ($4.9 billion) in financing for the electricity sector in an unexpected amendment in Parliament, casting doubt on sector reforms and raising costs for companies.
Iberdrola, Gas Natural and Endesa fell as much as 2.4 percent.
Trade in UK utilities remained choppy after British Prime Minister David Cameron promised to lower rising energy costs. In response, SSE and Centrica said they would cut energy bills.
More broadly, analysts and traders said the longer term trend higher in European shares is likely to continue, supported by improving earnings and equity-friendly monetary policy from central banks.
JP Morgan and Deutsche Bank, which raised its 2014 target for the Stoxx 600 to 375 from 345, suggested there could be as much as 15 percent upside from current levels.
European equity flows remain supportive of the rally. Last week saw the 22nd straight week of inflows from U.S. investors.
There is also little in the way of resistance on the Stoxx 600 until the 400 level, Guardian Stockbrokers' director Atif Latif said.