European shares fail to hold 1,000-mark

* FTSEurofirst 300 slips further from an 11-month high

* Miners and banks lead fallers, drugmakers in favour * For up-to-the-minute market news, click on [STXNEWS/EU]

By Dominic Lau

LONDON, Sept 21 (Reuters) - European shares fell early on Monday, with the main FTSEurofirst 300 index dipping below the 1,000 mark and further slipping from an 11-month high on worries the market may have sped ahead of economic fundamentals.

Miners and banks were among the main losers, but defensive drugmakers were in demand, lending support to the market.

By 0819 GMT, the FTSEurofirst 300 <.FTEU3> of top European shares was down 0.8 percent at 998.07 points. The index rose above the 1,000 level on Wednesday after an 11-month gap and hit a year high of 1,013.63 a day later. But it closed down 0.5 percent on Friday.

"The market might look slightly overbought near term, but the economy is definitely improving, corporate profits are definitely improving, interest rates are staying low and valuations aren't expensive. We are still quite bullish," said Nick Nelson, European equity strategist at UBS.

The index has rallied 54.6 percent since hitting a floor in March and is up 17.4 percent this quarter, on track to post its best quarterly rise in almost a decade.

Miners fell, with traders citing weaker gold prices , which dropped below $1,000 an ounce for the first time in almost a week. Other precious metal prices were also softer.

Rio Tinto , Anglo American , Xstrata , Vedanta Resources and Kazakhmys were down 1.7-2.9 percent.

BHP Billiton fell 2.4 percent. A Wall Street Journal report said BHP Billiton planned to use part of a cash surplus of around $18 billion to fund a round of acquisitions, possibly involving some large rivals. [ID:nB432285]

The banking sector, which has rallied 170 percent since March, was also out of favour, with HSBC , Banco Santander , UBS , Lloyds Banking Group and BBVA down 1-1.8 percent.

Royal Bank of Scotland was down 2.2 percent. A source familiar with the situation said the bank was talking to investors to gauge support for a "modest" equity placement of 3 billion to 4 billion pounds ($4.9 billion-$6.5 billion). [ID:nLK577890]

In the pharmaceutical sector, Novartis , Elan , Lonza Group and UCB rose 0.4-4.1 percent.

The VDAX-NEW volatility index <.V1XI>, a gauge of investor risk appetite, rose 6.7 percent. The higher the volatility index, the lower investors' appetite for risky assets such as equities.

Across Europe, Britain's FTSE 100 <.FTSE> slipped 0.7 percent, Germany's DAX <.GDAXI> fell 1 percent and France's CAC 40 <.FCHI> eased 0.4 percent.

NOT PRICEY

UBS's Nelson, however, said European equities were not expensive.

"There is a bubble in some assets. It is more of a bubble in emerging market equities ... There is probably more of a bubble in other assets (for example) property," he said.

"Globally, because of very low interest rates, you are going to see bubbles but equities in Europe, on 13 times next year's earnings, are not bubble valuations."

Spain's Endesa dropped 5.2 percent to top the FTSEurofirst 300 fallers after UBS downgraded the utility firm to "sell" from "neutral" while Citigroup cut the stock to "hold" from "buy".

Among other individual movers, German potash supplier K+S shed 4.7 percent after Potash Corp of Saskatchewan , the world's biggest fertilizer producer, lowered its 2009 earnings target on Friday, citing weak sales.

Volkswagen , Europe's largest carmaker, lost 2.6 percent. German industry publication Automobilwoche quoted an unnamed Japan's Suzuki Motor <7269.T> executive as saying the German automaker was expected to take a stake in Suzuki by the end of 2009. (Editing by Mike Nesbit)