* FTSEurofirst 300 down 0.1 pct
* Budget airlines fall after Ryanair numbers
* Banks lead financial gains on recovery optimism
* Investment banks turn cautious on equities short-term
By David Brett
LONDON, Jan 28 (Reuters) - Weak airlines offset gains for the financial sector on Europe's stock exchanges on Monday, while several indicators suggested the new-year bull-run for European shares could have peaked for now.
By 1135 GMT, Europe's leading shares shed 1.08 points, or 0.1 percent, to 1,173.73. That compared to a near two-year high of 1,174.81 reached on Friday.
The travel and leisure sector was the main drag on the FTSEurofirst 300, down 0.9 percent and led lower by budget airlines Ryanair and easyJet, which retreated after a recent surge.
Ryanair shed 1.5 percent after it reported strong growth in European fares in the fourth quarter but warned of marginal passenger growth in 2013, capped by a slow-down in plane deliveries.
EasyJet fell 1.8 percent on news of the departure of chairman Mike Rake, who has endured a strained relationship with majority shareholder Stelios Haji-Ioannou.
Banks rallied further after Friday's announcement that lenders made hefty early repayments of emergency funding from the European Central Bank, a sign at least parts of the financial system are returning to health.
"Financials (including banks, asset managers and insurers) are the play for this year and I still think they have got some way to go," Charles Morris, fund manager at HSBC, said.
The European banking sector remains cheap on a depreciated 2013 price-to-book-value of 0.85 times, while Deutsche Bank calculated an implied cost of equity of 12 percent was at the bottom of the post-2007 range. If cost of equity is low, that normally suggests that a sector has room to improve.
HSBC's Morris said: "Banks are still repairing their balance sheets in Europe but over time investors will get significant capital returns and then the income will follow."
Yield remains a strong driver for equities, relative to 2 percent returns on "safer" bonds and cash rates close to zero.
Offshore rig contractor Transocean 4.1 percent higher after activist shareholder Carl Icahn said late on Friday he wanted to see it declare a dividend of at least $4 per share.
As a number of indicators suggested equities may have peaked after hitting multi-year highs, Citigroup, Nomura and JP Morgan all turned cautious on equities in the near-term but stopped short of calling an end to the rally.
JP Morgan pointed to Citigroup's U.S. Economic Surprise Indicator turning negative as well as the move by AAII Investor Sentiment Survey into the top 5 percent of observed readings. Equivalent moves in the past have normally been followed by lacklustre equity returns, it said.
Where earnings remain a concern, companies continue to get punished by investors. Capita was among the top fallers, down 2.1 percent after Canaccord cut its rating to "sell" on valuation grounds warning the medium-term outlook for EPS growth is much more muted for the British outsourcing firm.
It has been a robust if unspectacular start to the earnings season in Europe, with 57 percent of the companies that have reported earnings beating or meeting expectations.
New York has done better, however. Of the 141 companies in the S&P 500 that have reported earnings to date for the fourth-quarter 2012, 67 percent have reported earnings above analyst expectations. This is higher than the long-term average of 62 percent.
U.S. stocks closed at their highest level in five years on Friday and were enjoying their best consecutive run in eight years, fuelled by improving economic and corporate data.
"A lot of people might have underappreciated the bear market recovery rally, which is much broader than investors realise. In the cash markets in Europe there might be another 20 percent to go until it becomes fair value with the United States," HSBC's Morris said.