Europe shares slip from 11-month peak; banks weigh

* FTSEurofirst 300 slips from 11-mth highs; down 0.4 pct

* Banks fall, but sector index up 170 pct from March lows

* Energy, mining shares fall; weaker commods put pressure

* For up-to-the-minute market news, click on [STXNEWS/EU]

By Atul Prakash

LONDON, Sept 18 (Reuters) - European shares fell on Friday from an 11-month peak scaled in the previous session, with banks slipping after British regulators set tougher-than-expected terms on Lloyds' exit from a government scheme.

At 0908 GMT, the FTSEurofirst 300 <.FTEU3> index of top European shares was 0.4 percent lower at 1,006.97 points. On Thursday, it closed higher for the ninth session in 10 on mounting hopes the global economy was on a recovery path.

The index is up 21 percent this year and has jumped 56 percent since hitting a record low in early March. It has gained 18 percent this quarter and is on track to post the index's strongest quarterly performance in almost a decade.

"As we enter the last trading session of the week, we see markets taking a breather following the recent gains. Whilst it is almost inevitable that there will be a pullback on some days, it is the strength of the dips that will be in focus," said John Murphy, analyst at ODL Securities.

"If we truly are in a bull run, investors will buy the dips. If confidence is fragile, any dip could be perceived as the start of the slump. Markets tend to overreact on both the long and short side, so today could be a barometer for... confidence."

Banks <.SX7P>, which have surged more than 170 percent since March lows, were among top losers.

Britain's Lloyds Banking Group was down 0.6 percent in line with the broader market trend. The bank said it was in talks over scaling back its participation in a state-backed scheme to insure it against credit losses, and was also weighing up alternatives to the scheme. [ID:nLI109343]

The news sent sterling to a four-month low against the euro, as a source told Reuters on Thursday that the Financial Services Authority had set tougher-than-expected captial conditions on Lloyd's potential exit from APS, making its departure less likely. [ID:nLH721093]

Standard Chartered , Barclays , Royal Bank of Scotland , BNP Paribas and Societe Generale fell 0.5-1.7 percent.

Across Europe, Britain's FTSE 100 index <.FTSE>, Germany's DAX <.GDAXI> and France's CAC 40 <.FCHI> fell 0.1-0.4 percent.

ENERGY SHARES LOSE POWER

Energy shares tracked oil prices , which fell 1 percent to trade below $72 a barrel after surging this week. BP , BG Group , Tullow Oil , Repsol , Total and StatoilHydro shed 0.5-2.7 percent.

Miners lost ground after key base metals prices slipped. Copper fell on rising stocks and waning import demand from China. BHP Billiton , Anglo American , Antofagasta , Rio Tinto , Xstrata and Eurasian Natural Resources fell 0.6-2.8 percent.

Volkswagen fell 1.6 percent. The automaker is planning to integrate its three different brands for light and heavy commercial vehicles under one roof, the group's head of sales and marketing said late on Thursday. [ID:nLH9471]

On the positive side, home improvements retailer Kingfisher climbed 2.6 percent after the firm's strong first-half results a day earlier prompted a round of price target hikes by brokers.

Drugmakers, seen as defensive stocks, were also in demand. AstraZeneca , GlaxoSmithKline , Merck , Novartis , Roche Holding , Sanofi-Aventis and Shire rose between 0.6 and 1.9 percent.

In industry news, American Airlines will team up with British Airways and Qantas Airways to expand their alliance with cash-strapped Japan Airlines <9205.T>, two people with direct knowledge of the talks said, to beat off a rival offer from another airline. [ID:nT114674]

British Airways shares were down 2.1 percent.

(Editing by Lin Noueihed)