(Reuters) - European shares were down on Friday, snapping a four-day rally and nearing technical resistance levels, while Greece and its private bondholders inched closer to a deal.
Bankers and sources close to the talks said an agreement was in sight but investors remained sceptical as previous predictions of a quick resolution have proved premature.
The pan-European FTSEurofirst 300 index of top shares was down 0.3 percent at 1,042.89 points by 1230 GMT after hitting a 5-1/2 month high on Thursday.
The benchmark was nearing overbought territory, with its Relative Strength Index (RSI) close to 70. The index is a technical momentum indicator that determines overbought and oversold conditions. Seventy and over is considered overbought.
Germany's blue chip index, down 0.1 percent, was also close to overbought territory after trading volumes hit a 4-month high on Thursday, fuelled by heavy trading in Commerzbank shares.
Around midday trading volumes in the index were at 102 percent of 90-day average.
Given the strong gains of the past few days it is understandable the DAX takes a breather. It now needs to beat the level 6,430 points, which it hit at the end of October, analysts at IG Markets said. Whether this will happen depends largely on the discussions in Greece.
Around Europe, UK's FTSE 100 index was down 0.1 percent, France's CAC 40 down 0.5 percent, Spain's IBEX down 0.5 percent and Italy's FTSE MIB down 0.4 percent.
Eyes were on 31 European banks, who must tell their national regulators by Friday how they plan to shore up their capital as part of the continent's efforts to deal with its debt crisis.
Commerzbank shares jumped 6.7 percent to a 3-month high, benefitting from an early disclosure of its plans to shore up its capital on Thursday.
Commerzbank is a real winner in this race, having already set aside significant portion of the required funds, a trader said.
The STOXX Europe 600 Banks index was up 0.6 percent.
Wacker Chemie suffered as Germany wants to speed up cuts in solar subsidies. Wacker Chemie is a supplier to the solar industry. The shares were down 4.7 percent.
Weir shares were off 4.6 percent on worries surrounding growth rates in the shale industry, in which the engineering group has a significant presence.
The Euro STOXX 50 volatility index Europe's yardstick of investor sentiment known as the VSTOXX, was down 4.2 percent at 25.4 to its lowest level since early August, signalling a rise in investors' appetite for risky assets.