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Oil stocks, car makers weigh on European shares

At 1156 GMT, the pan-European FTSEurofirst 300 index was down 1.6 percent at 812.44 points, having risen 1.8 percent the day before.

Oil shares were the biggest losers on the index, as crude oil continued to hover around $47 a barrel after falling 5 percent in the previous session. BP, Royal Dutch Shell and Total

slid between 2.8 and 4.7 percent.

Car makers took a whipping after their U.S. peers GM, Chrysler and Ford Motor Co posted a drop in combined U.S. sales of nearly 40 percent for November.

In addition, the VDA association of German carmakers said it saw more trouble ahead as the market shrinks further next year. Daimler, BMW and Peugeot were down between 3.5 and 4.2 percent.

Euro zone services activity fell further than initially thought in November to a record low while inflationary pressures continued to subside, a key survey showed.

In addition, Euro zone retail sales fell much more than expected in October, underlining weak consumer demand.

But analysts said bad news was mostly priced in and was unlikely to influence rate decisions further.

"We know the data flow, it is already been factored in, it is the reaction now that counts almost more than the data itself," said Dresdner Kleinwort strategist Philip Isherwood.

"The expectation is tomorrow to see hopefully some monetary reaction ... with the European Central Bank decision. The market is looking for 75 basis points, but there is the feeling they will only get 50 basis points, which is mildly disappointing."

A Reuters poll of economists last week pointed to the ECB cutting rates by a relatively conservative 50 basis points to 2.75 percent.

Basic resources lower

Miners were lower as metals prices fell with Rio Tinto shedding 8.9 percent on market talk of a rights issue. The company was not immediately available for comment.

Meanwhile, EDF weighed heavily on the benchmark index, dropping more than 5.3 percent after it offered to buy a 50 percent stake in Constellation Energy Group Inc's nuclear business.

Banks were also trading lower. Anglo Irish Bank fell 18.1 percent after it posted a 34 percent decline in full-year earnings while Commerzbank fell 2.2 percent and Banco Santander

lost 2.2 percent.

Allied Irish Bank was up 2.2 percent, however, on hopes it would be recapitalised by the Irish government.

Across Europe, Britain's FTSE fell 0.7 percent, Germany's DAX retreated 1.6 percent and France's CAC was down 1.4 percent.

Wall Street was set to open lower, with futures for the Dow Jones, the S&P 500 Index and the Nasdaq index down between 1.4 and 1.7 percent.