European Markets Slip as Traders Gauge Stimulus Chances

European shares were flat on Friday, steadying after weakness in the previous session, as investors speculated over the likelihood of a new round of stimulus from the U.S. Federal Reserve.

The FTSEurofirst 300 was trading at 1,089.58 at 0907 GMT, having shed 0.6 percent on Thursday as concern over the global economic outlook in the wake of gloomy data releases prompted investors to lock in profits after strong recent gains.

Trading volume on the FTSEurofirst 300 stood at 16 percent of the 90-day daily average. After chalking up 11 consecutive weekly gains, the index is down nearly 2 percent so far this week.

Mining stocks were the biggest fallers on Friday, going into retreat after gains in the previous session, as stimulus expectations ebbed and flowed.

Eurasian Natural Resources and Rio Tinto were among the top FTSEurofirst 300 fallers, suffering respective drops of 3.6 percent and 3.3 percent.

"Overall we expect investors to refrain from building exposure to risk assets such as stocks and the euro until we get some clarity from the Fed next week," Ishaq Siddiqi, market strategist at ETX Capital, said.

On Thursday, Federal Reserve Bank of St. Louis President James Bullard, a non-voting member of the Fed, said that U.S. data has been somewhat better since early this month and the minutes from the Fed's latest policy meeting were "a bit stale", referring to discussions that indicated a third round of quantitative easing was in the cards.

Hours later, however, Chicago Fed President Charles Evans told CNBC that the Fed should take action to bring down unemployment, including by buying more bonds.

"Fed QE is a bit of an each way bet at the moment ... But you've got to bear in mind that the rally that we've seen is on expectations of further QE, so I think it's already priced in," Michael Hewson, senior market analyst at CMC Markets, said.

Fed Chairman Ben Bernanke in the past has used annual conferences in Jackson Hole, Wyoming, to signal publicly the Fed's intentions, with market moves likely to be muted until this year's conference late next week.

The Euro STOXX 50 also traded flat, at 2,428.68. The put/call ratio of Euro STOXX 50 options jumped to a seven-month high above 2, signalling a surge in investors' appetite for protection.

A meeting on Friday between German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras will also be in focus.

"With Samaras likely to hit a wall of resistance in Berlin today, market talk of a Grexit may well be back on the cards. Going into the weekend investors won't be taking any chances," said Mike McCudden, head of derivatives at Interactive Investor.

Euro zone banking shares were down 1.3 percent on jitters about European leaders' ability to contain the debt crisis.