European shares snapped a four-session rally yesterday after the US Federal Reserve hinted at more monetary tightening, with drugs giant GlaxoSmithKline down as it traded without the right to its latest dividend payout.

A conservative growth forecast from French television group TF1 and high oil prices that kept Air France, British Airways and other fuel-hungry airlines under pressure also eroded recent market gains.

But BHP Billiton bucked the weaker trend, surging 3.5 per cent after the world's biggest miner said it more than doubled first-half net income. Forecast-topping profits also buoyed news and information provider Reuters.

By 1640 GMT, the FTSEurofirst 300 index of pan-European blue chips was 0.6 per cent weaker at 1,095.93, having retreated from earlier 32-month peaks as reports of a powerful explosion near in Iran also unsettled markets.

The narrower DJ Euro Stoxx 50 index also fell 0.6 per cent to 3,068.6 points.

Fed Chairman Alan Greenspan helped pull down stocks when he said real interest rates remained "fairly" low, comments which financial markets interpreted as a sign that further monetary tightening was still to come.

"The risks from an equity point of view have to be on the downside," said Rolf Elgeti, a strategist at ABN AMRO.

"It is clear that part of the support equity markets have had over the past two years has been the cheap and ample liquidity that the Fed has pumped into the world's financial system. Any noise that there might be less liquidity available could and should be taken negatively."