European shares hit a two-week low yesterday after a rebound in oil prices revived concerns about slower economic growth and mining stocks like BHP Billiton sank on fears a weak dollar will also hit profits.

The dollar was hovering within half a cent of life lows against the euro, encouraging traders to book profits across all sectors after European indexes hit 28-month highs last week, analysts said.

"The persistent strength in the euro is weighing on markets just at the moment, but that is after a period of very strong run and quite a good out-performance over the US," said Ian Scott, a strategist at Lehman Brothers, adding that the rebound in oil prices was also weighing.

US crude oil rose above $49 a barrel early in the session on worries about heating fuel supplies and production from Iraq, before easing in New York trade.

The FTSEurofirst 300 index of pan-European blue chips closed down 0.5 per cent at 1,023 points, having hit a two-week low of 1,018.3 points during the day. Turnover was modest at around €2.5 billion.

The narrower DJ Euro Stoxx 50 index fell 0.5 per cent to 2,879.6 points, having climbed from a 2004 low of 2,559.9 points in mid-August.

Goldman Sachs cut its weighting on European equities to neutral from a small overweight position yesterday, saying it expected the rebound in stocks from the lows to be limited.

A likely increase in interest rates and slowing growth for profits and margins meant valuations would looked stretched if equity prices rose more than ten per cent, Goldman said in a note.

However, others see value in European stocks both compared with rival assets like bonds, and on a historical basis.

"Our price-to-earnings ratio volatility analysis suggests that European stock markets are extremely cheap," said Jean-Luc Buchalet, a strategist at research company JCF in Paris.