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* FTSEurofirst 300 index finishes 0.3 percent lower
* Euro STOXX 50 near "overbought" level; vulnerable
* Healthy consolidation, medium-term outlook positive
By Atul Prakash
LONDON, Jan 14 (Reuters) - European equities ended at a two-week low on Monday, with a sell-off in U.S. shares on concerns over demand for Apple's iPhone 5 prompting some profit-taking on recent strong stock gains in Europe.
Charts showed European shares hovered near "overbought" trading conditions and were vulnerable to more declines in the near term, although the market's medium-term outlook remained positive and the market had potential to set new highs.
The pan-European FTSEurofirst 300 finished 0.3 percent lower at 1,159.76 points, the lowest close since Jan. 2, after hitting a 22-month high earlier this month.
The index climbed to a high of 1,167.10 earlier in the session, helped by some merger and acquisition news, but later tracked U.S. stocks lower as investors feared the market was losing momentum.
"European equities lost their early lustre, impacted by Wall Street and offsetting some low-level M&A activity in Europe," Jeremy Batstone-Carr, head of private client research at Charles Stanley, said.
"It appears that the 'risk on', 'buy cyclicals and financials' rally is running its course now. Instead, with the valuation gap narrowing, it's time to look at quality again."
He said the latter investment style had underperformed in the second half of 2012, but could come back, especially at a time when the market faced uncertainty over the reporting season, the U.S. fiscal crisis and Italian elections.
Italy's FTSE MIB fell 0.6 percent on political uncertainty in the debt-stricken country. Polls showed on Sunday Silvio Berlusconi's centre-right alliance is gaining ground before next month's elections, which could make it harder for Italy's left to form a stable parliamentary majority.
"We are very defensive at the moment. We have got some big issues to get through in the first quarter, most notably the Italian elections," David Scott, senior stock broker at Redmayne-Bentley, said.
"The New Year euphoria is now starting to run out of momentum. People are taking a second breath and thinking what really has been behind this rally. We are also heading towards another confrontation in the U.S. on budget deficit issues."
The euro zone's blue chip Euro STOXX 50 index fell 0.1 percent to 2,715.16 points, with its relative strength index at 68, suggesting near-overbought trading conditions that often leads to pullbacks.
"In the near-term, the market is 'overbought', but I don't see this as anything apart from a healthy consolidation above the 2,600 level," Dominic Hawker, technical analyst at Westhouse Securities, said.
"The market has broken out of a one-year base formation and even if it pulls back to 2,600, that level would become a very good springboard. The next strong resistance is at around 3,000, a high in the middle of 2011."
Deutsche Bank was also positive on the market's outlook in the medium term. It said in a note that European shares should benefit from a wave of dividend increases in 2013.
It expected cyclical stocks - ones seen as the most sensitive to the state of the broader economy - to lead and highlighted electronics company Philips and recruitment company Adecco as dividend plays.
According to smart estimates from Thomson Reuters StarMine, which puts more weight on top-rated analysts and recent updates, the STOXX Europe 600 index's dividend yield over the next 12 months is estimated at 3.8 percent. That is better than the U.S. S&P 500 index, which is forecast to have a 2.3 percent dividend yield over the same period.
Among significant movers on Monday, the STOXX Europe 600 Industrial Goods & Services index topped the decliners' list after United Parcel Service said it would drop its 5.2 billion euro ($7 billion) bid for peer TNT Express on the expectation of a European Commission veto.
Shares in the Dutch delivery firm plunged 41 percent, while Dutch postal firm PostNL, the biggest shareholder in TNT Express, slipped 36 percent.