FRANKFURT, Feb 23 (Reuters) European shares edged lower on Thursday after a surprise jump in German business sentiment fuelled worries of further European Central Bank rate hikes, prompting investors to cash in gains as shares trade near 4-1/2 year highs.
The FTSEurofirst 300 index of leading European shares shed early gains to trade down 0.2 per cent at 1,355.60 points by 1150 GMT (1720 IST).
Across Europe, Frankfurt's DAX and France's CAC 40 were 0.1 per cent lower each, while Britain's FTSE 100 dipped 0.4 per cent.
''The Ifo index lifted markets briefly before investors realised that the European Central Bank might now raise interest rates not just in March but also later,'' said Guenter Senftleben, a strategist at Bankgesellschaft Berlin.
German retail giant Metro held onto a 4-per cent rise as Munich's Ifo-institute unexpectedly rose to its highest level in more than 14 years in February.
The ECB is expected to raise interest rates next Thursday due to recent sound economic growth data and inflation risks, according to a Reuters poll.
Senftleben said investors were cashing in recent gains triggered by merger and acquisition talk in the utilities sector after Germany's E.ON made an offer for Spain's Endesa earlier this week.
NOT SUSTAINABLE ''Prices of utilities and other stocks have reached levels that don't look sustainable at the moment, given the overall economic enviroment,'' he said.
Among notable blue-chip losers, Nestle fell 1.7 per cent to 392.75 francs after the world's largest food group said high oil prices and a volatile political environment could affect business in 2006.
German utility RWE fell 2 per cent after WestLB cut it to ''hold'' from ''add'', saying the firm's full-year 2005 results and dividend had been below expectations.
''In the light of the upcoming potential uncertainties, we believe that the stock has limited upside,'' said analyst Marc Koebernick in a research note.
High on investors' agenda later in the day are U.S. weekly jobless claims data due at 1430 GMT (2000 IST), with a Reuters poll of economists foreseeing an increase to 300,000 from 297,000.
Lower oil prices pushed shares in oil major BP down 1.2 per cent. U.S. light crude oil prices dipped to .91 a barrel by 1153 GMT (1723 IST) ahead of U.S. inventories data later in the day forecast to show a build in already healthy supplies.
On the upside, shares in EDF, Europe's largest utility, rose 2 per cent after it said overnight that net profit doubled in 2005, beating expectations.
French rival Suez gained 4.1 per cent, extending Wednesday's gains, after Italy's Enel said it may bid for it.
Car tyre maker Continental, one of the top German performers in 2005, rose 4.2 per cent after it forecast higher revenue and operating profit in 2006.
REUTERS SD HS2028