European shares dip as oils weaken; UBS gains

LONDON, July 4 (Reuters) - European shares dipped early on Friday, as profit taking in oil stocks after a recent stellar run offset gains in Swiss bank UBS (UBSN.VX: Quote, Profile, Research), which jumped after saying it expected to post at worst a small quarterly loss.

At 0720 GMT, the FTSEurofirst 300 index of top European shares was down 0.1 percent at 1,176.77 points.

UBS gained 3.7 percent after saying a 3 billion Swiss franc tax credit helped to save it from another hefty loss in the second quarter, though its investment bank continued to lose money.

But oil stocks, which rose 15 percent in the second quarter to end-June on surging crude prices, were broadly weaker.

Index heavyweight BP (BP.L: Quote, Profile, Research) fell 0.6 percent, Royal Dutch Shell (RDSa.L: Quote, Profile, Research) lost 0.9 percent and Total <TOTF.PA. dipped 0.3 percent.

European shares rose on Thursday after the European Central Bank raised rates by 25 basis points as expected but indicated that no further moves were imminent.

"The rate decision was a short-term positive as the wording of the statements was not hawkish as expected. Clearly the ECB needs to see inflation expectations building and second-round effects before they hike again," said Gerhard Schwarz, head of global equity strategy at UniCredit in Munich, Germany.

"But we cannot get any big relief as long as the overall stagflation fears hang over the market, and the oil price is a major factor in this. There will be a wave of downward pressure on equities after any recovery," he added.

"The big question on equity markets is: how far will the derating go, and when will valuations find a bottom as we consider inflationary pressures not seen in two and a half decades?"

(Reporting by Sitaraman Shankar)