* FTSEurofirst 300 index falls 0.2 percent
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By Atul Prakash
LONDON, April 6 (Reuters) - European equities drifted lower on Wednesday after hitting four-week highs, with EDF dragging down utilities following a target price cut, while banks fell on worries about the euro zone's debt crisis.
The FTSEurofirst 300 index of top European shares was down 0.2 percent at 1,142.07 points at 0946 GMT, after earlier touching 1,146.54, its highest since March 9.
The STOXX Europe 600 Utilities index, down 0.7 percent, topped the losers' list. EDF fell 3.9 percent after Citigroup cut its price target and said the company remained its least favoured utility in France as well as in the sector.
Banks also lost ground, with the sector index down 0.2 percent. Allied Irish Bank slipped 15.7 percent as sentiment worsened after Standard and Poor's downgraded its ratings on Irish banks on Tuesday.
Across Europe, Portugal's PSI 20 fell 1.1 percent, while Italy's FTSE MIB was down 0.6 percent.
"Portugal and the threat of a required bailout continue to dominate investor thoughts. While any bailout of Portugal is not seen as tipping Europe over the edge, the failure of the region's politicians to resolve the big issues continues to apply pressure," Hargreaves Lansdown analyst Keith Bowman said.
"An expected ECB rate hike is also mudding waters, with some investors believing the move is primarily being made to jolt politicians into action."
Investors waited for the sale of Portuguese treasury bills on Wednesday. Portuguese yields reached new euro lifetime highs as the country's ratings were downgraded after the government collapsed.
Local banks have threatened to stop buying government bonds unless the country seeks a foreign loan soon. Retailers, however, gained ground after Marks & Spencer beat a sales forecast and said it had not seen a major deterioration in consumer confidence recently. M&S shares rose 5.5 percent, while the STOXX Europe 600 Retail index gained 0.8 percent.
KEY ISSUES
Don Fitzgerald, fund manager at Tocqueville Finance, which manages $2.2 billion, said the market faced some key issues such as commodity price inflation and the monetary policy tightening.
"If oil climbs much further above current levels and remains high for say six months or more, it will definitively slow down the global economy," he said, adding there was a risk that a too aggressive, too fast monetary tightening could result in more struggle for indebted western economies.
Fitzgerald said it seemed sectors sensitive to emerging market growth had "clawed back some of the underperformance" versus sectors such as financials and utilities.
Oil prices stayed near a 2-1/2-year peak, supported by widespread unrest in the Middle East and North Africa and a weakness in the dollar.
Barclays Capital, however, said the overall macro environment remained positive and earnings had continued to show upward momentum. Valuations remained cheap and fund flow data suggested rising institutional interest in equities.
"We reiterate our bullish stance on European equities, with a 2011 target of 3,350 for the Euro STOXX 50 and 325 for the STOXX 600 in spite of the aforementioned risks," the broker said in a note. The indexes were at 2,621.27 points and 280.40 points respectively on Wednesday.
(Reporting by Atul Prakash; Editing by Erica Billingham)