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European shares lower before U.S. jobs data

LONDON (Reuters) - European shares lost ground on Friday and Brent oil sank towards its steepest weekly fall this year, ahead of a reading on the U.S. jobs market that could heighten concerns about the health of the world's biggest economy.

Investors also kept a wary eye on weekend elections in the euro zone, with evidence of a sharp contraction in the region's dominant services sector suggesting its recession could last longer than feared.

Voting in France and Greece is likely to provide a litmus test of popular tolerance for further austerity, a day after the European Central Bank ended near-term hopes of more policy easing to boost the ailing economy.

The FTSEurofirst 300 <.fteu3> index of top European shares dropped 0.35 percent by 1055 GMT while U.S. stocks were expected to open flat with the DJIA future up 0.02 percent.

Expectations for U.S. non-farm payrolls, due at 8.30 a.m. EDT, have been scaled back this week. A Reuters consensus forecast suggests the economy added 170,000 jobs in April now looks optimistic.

"The whispers on Wall Street hint it will be a disappointing result," IG Markets strategist Stan Shamu said.

A recent run of data showing tepid growth in the U.S. services sector and a slowdown in private sector hiring raised concerns the recovery that drove equity markets higher in early 2012 is stalling, and some traders are now positioning for payroll gains between 125,000 and 150,000.

Last month, the data came well below estimates at 120,000, sparking fears of a growth slowdown.

The recession in the euro zone was tipped to extend through to mid-year after Friday's PMI business survey showed the region's services sector shriveled at a much faster rate in April than initially thought.

Survey compiler Markit said the figure was consistent with a 0.5 percent quarterly rate of economic contraction.

"Growth has practically ground to a halt even in Germany, and France," said Chris Williamson, chief economist at Markit.

Attention on European banks' efforts to weather the region's debt crisis drove choppy trade in BNP Paribas .

Shares in France's top lender fell more than 1 percent in early trade before jumping to a gain of 2.3 percent as investors digested strong profits offset by weak revenues due to a cut in its exposure to the euro zone periphery.

"The (initial) negative reaction suggests ...doubts over bank stocks (remain), particularly in France, where investors seem to want to wait it out until the presidential elections are over," said Yohan Salleron, fund manager at Mandarine Gestion.

OIL UNDER PRESSURE

The evidence of slowing global economic activity drove a sharp drop in European basic resources stocks <.sxpp>, which fell 2 percent by 1105 GMT.

It also left Brent crude poised for a weekly fall of around 4 percent, its steepest since December 18. The oil benchmark fell 0.9 percent to $115.20 while U.S. oil is set to drop more than 2 percent, its biggest weekly decline in a month.

The euro dipped 0.15 percent against the dollar to $1.3130 following the weak PMI reading. It stayed above a two-week low of $1.3095 hit on Thursday before ECB chief Mario Draghi said growth initiatives would have to come from governments rather than via monetary stimulus.

"Securing a longer-term recovery in the global economy needs more than repeated quick fixes from monetary policy. That point was reinforced by the ECB yesterday," Ian Williams, equity analyst at Peel Hunt, said.

"Investors now face the modest hurdle of the U.S. payrolls numbers before the weekend allows some time for contemplation."

ELECTION FEVER

European bond markets held steady before Sunday's elections, though concerns the vote in Greece could lead to a renegotiation of the country's bailout kept peripheral debt yields under the microscope.

Front-month German Bund futures were down 0.11 at 141.60 while the yield on French 10-year bonds debt held steady, as did its premium over German benchmark debt.

Many in the market are anticipating Socialist frontrunner Francois Hollande will tone done rhetoric on possible fiscal easing should he, as expected, beat incumbent Nicolas Sarkozy in Sunday's run-off vote for the presidency.

"France is probably in the price, that Hollande is going to win," said one trader. "Greece is probably the more dangerous one in a way if you get some sort of anti-European (government)."

Polls from Athens indicate the two main parties may fail to secure a majority, which may usher in a broad coalition including minor parties firmly opposed to Europe's austerity measures.

"If Greece's coalition doesn't get enough members of parliament then definitely there will be underperformance by the periphery," Lloyds Bank strategist Achilleas Georgolopoulos said. "The market reaction will be more evident on the periphery, with Spain and Italy hit the hardest."

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