* FTSEurofirst 300 flat, having dipped below 2008 close
* Insurers, miners leading decliners
* UBS top blue-chip gainer on report U.S. may drop tax case
* Utilities rise on JPMorgan sector upgrade
By Peter Starck
FRANKFURT, June 23 (Reuters) - European shares were flat on Tuesday, having briefly turned negative amid doubts about the timing of a return to economic growth, which sent stock markets in the United States and Japan sharply lower.
UBS shone, rising 3.1 percent after the New York Times reported the U.S. Justice Department may drop a case aimed at forcing the Swiss bank to reveal the names of 52,000 wealthy American clients suspected of tax evasion.
At 0855 GMT, the pan-European FTSEurofirst 300 index of top shares was down 0.1 percent at 836.68 points, having fallen as much as much as 0.7 percent earlier in the session.
The European benchmark index ended 2008 at 831.97 points
U.S. stocks saw their worst one-day loss in two months on Monday and Tokyo stocks fell almost 3 percent on Tuesday.
"After the massive three-month rally that sent all major indexes significantly higher, we are now in the middle of the long-awaited pullback," Close Brothers Seydler said in a note.
"Market participants start to realise that the recovery in the economy and earnings is unlikely to be as strong as the rise in stock prices since early March."
Despite its recent drop, the European benchmark index is up around 30 percent from the record low set in early March.
"The pattern of the equity rally so far fits the traditional template of a sharp rise and a 'stall' period," Goldman Sachs said in a research note.
"Q2 will be a contractionary quarter and the forward indicators do not suggest positive growth in the (United States, Europe and Japan) until Q3," Goldman Sachs said.
Euro zone purchasing managers index (PMI) data on Tuesday showed that a recovery from the recession stalled in the services sector in June while manufacturing fared slightly better.
Insurers were weak, with AXA down 1.9 percent and ING Group falling 1.3 percent.
ANGLO AMERICAN IN SPOTLIGHT
The DJ Stoxx basic resources index, which includes mining companies, was the weakest sectoral performer with a fall of 1.6 percent.
Shares in Anglo American fell 2.3 percent after the mining group rejected a merger proposal from rival Xstrata. Xstrata shares fell 1.3 percent.
Anglo American trimmed some early losses after dealers cited market talk of bid interest from China's state-owned Chinalco. Both Chinalco representatives in London and officials from Anglo American declined to comment.
Utilities E.ON, up 1.3 percent and Iberdrola, up 1.5 percent, drew strength from a JPMorgan sector upgrade to "overweight" from "underweight", citing "a likely pickup in power prices, a potential rebound in economic activity, improved valuations and a relatively benign network price regulation".
The London-listed shares of Thomson Reuters Corp gained 5.4 percent on news that the data publishing and financial information group, which is also listed in New York, plans to withdraw its shares from the London Stock Exchange.
Also among the winners, mobile phone maker Nokia advanced 1.7 percent after Credit Suisse raised its target price for the stock to 14 euros from 12 euros, citing in a note "increased confidence on margins".
"We continue to see scope for volume, revenue, margin and valuation rebound in the second half of 2009," Credit Suisse said.
Later in the day, investors will focus on U.S. housing data at 1400 GMT.
"Particular emphasis will be paid to existing home sales in the United States and the (U.S.) house price index," said Heino Ruland, analyst at Ruland Research.
Eyes will also be on the U.S. Federal Reserve central bank, whose Federal Open Market Committee (FOMC) begins its two-day meeting on interest rate policy.
"It is almost certain that the Fed will leave the policy rate unchanged at this week's FOMC meeting; we believe it could keep rates at extremely low levels right through 2010," ING said in a note.
(editing by John Stonestreet)