European stocks inched lower in thin trade on Monday, slipping from 5 1/2-year highs as Deutsche Bank's surprise quarterly loss prompted investors to cash in recent gains on banking stocks.
Shares in Germany's biggest lender, which had not been due to release results until Jan. 29, sank 5.4 percent, wiping about 2.2 billion euros ($3 billion) off its market capitalisation.
The bank announced a drop in fixed-income trading revenues and heavy litigation and restructuring costs, which prompted it to warn about a challenging 2014.
Commerzbank fell 4.5 percent, Banco Popolare dropped 3.1 percent and Credit Suisse shed 2.5 percent.
"The figures of Deutsche Bank are surprising and there's no end to be seen, and therefore we are kind of critical about the conditions of the banking sector," said Oliver Roth, head trader at Close Brothers Seydler. "I think we have seen the bottom of the crisis, but I don't see the end of the crisis. Therefore I see much more potential in other sectors than banks."
Despite the day's sell-off in among banks, the STOXX bank index is still up 5.5 percent in 2014, Europe's best sector performance so far this year.
The FTSEurofirst 300 index of top European shares ended 0.1 percent lower at 1,344.17 points. The euro zone's blue-chip Euro STOXX 50 index ended down 0.03 percent at 3,153.17.
Trading volumes were light with U.S. markets closed for a public holiday.
Struggling French carmaker PSA Peugeot Citroen also figured among the top losers on Monday, sinking 11 percent after a source told Reuters the group's board has approved a dilutive 3 billion-euro capital increase, with China's Dongfeng Motor Co. and the French government taking a significant stake.
Shares in the struggling automaker are among the most shorted across Europe, with 16.7 percent of the company's shares out on loan, according to data from Markit.
Odey Asset Management LLP and D.E. Shaw are among the hedge funds with the biggest short positions on Peugeot, according to recent filings with French regulator AMF.
_0">Around Europe, UK's FTSE 100 index gained 0.1 percent, Germany's DAX index lost 0.3 percent, and France's CAC 40 fell 0.1 percent.
European stocks have rallied since last June as a pick-up in the region's macro indicators and a more dovish European Central Bank prompted investors to scoop up European shares. That has led to into massive investment inflows to the region.
Europe equity funds absorbed over $4 billion in net investment inflows in the seven-day period to Jan. 15, according to the latest data from EPFR Global. It was their fourth-biggest weekly total on record.
The brisk inflows into Europe equity funds represented nearly half the collective flows into all equity funds around the world, according to EPFR.
"The market has risen on hopes of a durable turnaround in growth for the euro zone. Recent data has signalled such trends for the U.S. and UK economies, but for the euro zone, it's been mostly optimistic forecasts, not real macro data," FXCM analyst Vincent Ganne said.
"Thursday's PMI for France, Germany and the euro zone should shed some light, with the focus on France, where data has been confusing recently."
_6">Europe indexes in 2014:
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