European shares dipped on Friday morning as caution prevailed ahead of a U.S. payrolls report which could point to a slowing of momentum in the world's largest economy.
Traders looked to square positions and reduce exposure to risk ahead of the non-farm payrolls data and the weekend, giving a boost to defensive stocks in the STOXX Europe 600 healthcare .SXDP and food sector .SX3P which rose 0.6 and 0.4 percent to limit falls in the wider market.
By 0836 GMT, the pan-European FTSEurofirst 300 index of top shares was down 0.2 percent at 1,129.36 points, on track to fall for the fourth straight session.
The payrolls report at 1230 GMT is expected to show employers added 186,000 jobs in April, with private jobs up 200,000.
But the risks of a weak reading of the payrolls report intensified after data on Thursday showed weekly jobless claims unexpectedly jumped to an eight-month high and the ADP private hiring came in below forecasts earlier in the week.
"Ahead of today's payrolls, the market might be a bit cautious. The employment component of the ISM survey registered a bit of a drop and the ADP figures were weak, and the combination has encouraged people to think that 200,000 for the private payrolls may be a little rich," said Mike Lenhoff, chief strategist at Brewin Dolphin.
But Lenhoff said the slowing of leading indicators was not a cause for major concern as the longer-term outlook for the U.S. economy remained intact, although a negative reading of the data could prompt traders to book profits.
"We've seen the initial phase of the recovery develop quite strongly and now we're seeing a return to a more sustainable growth path which involves some loss of momentum but I don't think we're going to see an economy that's going to stall."
Energy stocks .SXEP dragged the market lower by falling 1.2 percent as crude prices CLc1 dropped $3 to around $97 a barrel, extending hefty falls from the previous session, on uncertainty over the pace of U.S. economic recovery.
Some analysis, however, cautioned that lower energy prices could have implications on the outlook for global growth.
"The sell-off in oil over recent days poses its own dilemma, with the benefits of lower fuel costs (for airlines) weighed against the potential danger signals which a lower oil price sends, given its implied barometer status for the health of the global economy," said Keith Bowman, equity analyst at Hargreaves Lansdown.
A set of weak earnings results pressured individual shares, with Norway's largest bank DnB NOR leading the fallers on the FTSEurofirst 300 to fall 6.1 percent after the lender's first-quarter results missed forecasts. [ID:nLDE744177]
Belgacom fell 6 percent after the telecoms operator cut its 2011 outlook on the back of a first quarter hit from regulation, competition and a reduction of mobile phone use.
Data from Thomson Reuters StarMine showed that of the companies on the STOXX Europe 600 .STOXX that have so far reported earnings, 54 percent have released earnings that either met or exceeded forecasts with the rest below expectations.
Bucking the falling trend, ThyssenKrupp rose 7.2 percent after the steelmaker outlined further plans for a major revamp that might see it make 10 billion euros in divestments.