European shares slipped from near seven-month highs on Tuesday, with strategists saying the focus would now turn to the bleak outlook for Greece's economy after the country secured a second bailout and averted a messy default.
Euro zone finance ministers sealed a 130 billion euro ($172 billion) deal for Greece on Tuesday to avert a chaotic default in March after persuading private bondholders to take greater losses and Athens to commit to deep cuts.
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"We've dodged the iceberg. We haven't moved out of the ice field. There are no plans for growth (in Greece)," said Justin Urquhart Stewart, director at Seven Investment Management.
"Equities will find it difficult to make headway. Until we can see a path to growth (in Greece), there will be a draining away of the confidence that was coming back into the market. People will take a defensive posture in terms of stocks. We'll see a lot more people just building up cash for the time being."
Urquhart Stewart said he favoured stocks such as food producers.
At 0935 GMT, the FTSEurofirst 300 index of top European shares was down 0.1 percent at 1,090.12 points, having hit its highest close since July on Monday.
Energy stocks were among the losers, down 0.6 percent after a strong run. Crude prices remained high, bolstered by a cut in Iranian oil supply.
Banks, many of which have taken a hit on their balance sheets due to the long-running euro zone debt crisis, reversed earlier falls.
Euro zone banks were up 0.3 percent, and have gained 20 percent in 2012.
As well as greater confidence that the euro zone crisis is being contained, the sector has been boosted by the European Central Bank's Long-Term Refinancing Operation, providing cheap funding for banks.
Traders said they expected a pick-up in volumes in the session, with Wall Street re-opening later after a long weekend.
Manoj Ladwa, senior trader at ETX Capital noted that equities had had a "fantastic run-up" and said a correction was likely. But he also pointed to several factors that might limit the downside for markets.
"We've seen a pick-up in M&A activity. Economic data coming out of the United States in the past few weeks has been OK, and there have been good corporate figures," he said.
Technically, the pan-European index remained ripe for a pullback. Its 14-day Relative Strength Index remained above 70, considered by technical analysts to indicate "overbought" territory.
Global equity mutual fund investor sentiment continued to improve in the week to Feb. 17, Nomura quant strategists said in a note, citing a move upwards in their global composite indicator to a level that remains "consistent with neutral sentiment towards global equity markets".
Among individual companies, Belgian discount supermarket chain Colruyt fell 4.1 percent as analysts at Goldman Sachs added the shares to their conviction "sell" list.
Goldman Sachs, which previously had a "neutral" rating on the stock, says that increasing competition in Belgium after the entrance of Dutch chain Ahold will keep margins low.