LONDON (Reuters) -
Banks and miners led European shares lower on Tuesday as investors worried that higher interest rates would dent business, with the Federal Reserve expected to bump up U.S. borrowing costs.
The FTSE Eurotop 300 index of pan-European blue chips ended down 0.5 percent at 1,006.61 points, easing from Monday's two-month high.
Three stocks fell for each two that rose in moderate volume. The narrower DJ Euro Stoxx 50 index fell 0.4 percent to 2,828.59 points.
Stocks have struggled to make headway in recent months as concerns about rising interest rates have overshadowed strong economic data and earnings growth.
Markets fully expect the Fed to impose its first rate rise in four years on Wednesday when it concludes a two-day meeting, but uncertainty remains about the speed and extent of further anticipated rate increases as the economy recovers.
"Clearly the cycle of rising global interest rates has only just started, and this is likely to make it a very tough environment for equities through the second half of the year," said Geoff Langham, head of trading at CMC Group in London.
Some oil groups were hit by a slide in crude oil prices to a two-month low, while a drop in gold bullion below the psychologically important $400 an ounce level weakened mining stocks such as Anglo-American.
But there were bright spots, with shares in Belgian retailer Colruyt racing to a record high after several banks raised their rating on the discount chain following better-than-expected full-year results.
BAE Systems rose four percent to 218 1/4 pence after analysts at UBS bank said Europe's biggest military contractor could generate over £1 billion ($1.8 billion) more cash this year than it indicated in February.
Airlines rallied after data showed international passenger numbers jumped in the first five months of 2004. British Airways was up 2.3 percent at 278-3/4 pence, while Deutsche Lufthansa gained three percent to  11.23.
Autos give up gains
Auto makers gave up most of their gains from the previous session after a senior official at General Motors said U.S. new vehicle sales have been weaker than expected in June.
Credit Suisse First Boston investment bank warned against exposure to the U.S. auto market and recommended selling DaimlerChrysler and Renault to buy BMW.
DaimlerChrysler shares were down 0.9 percent at 38.6 and Renault fell 0.8 percent to 62.95. BMW advanced 0.3 percent to 36.33.
Shares in German stock exchange operator Deutsche Boerse fell 1.9 percent to 42.34 after French brokerage Credit Agricole Cheuvreux cut its rating on the stock, citing a deterioration in trading-related business.
British tobacco company Gallaher Group's cigarette volumes rose over six percent in the first five months of 2004, but it said trading in continental Europe was difficult, pushing its shares down 2.2 percent to 686 pence.
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