European shares retreat after weak German data

* FTSEurofirst 300 down 0.6 pct, still near 6-1/2 year high

* Stock markets slip after weak German economic data

* Total (NYSE: TOT - news) , Sanofi (NasdaqGM: GCVRZ - news) fall after cautioning over results

By Sudip Kar-Gupta

LONDON, July 7 (Reuters) - European stock markets retreated on Monday after weak German economic data took the wind out of a rally that had pushed a leading regional index back near 6-1/2 year highs.

Some analysts said the market could flatline in the near term although the longer-term outlook remained positive given the recent steps taken by the European Central Bank to boost the region's economy.

The pan-European FTSEurofirst 300 index, which hit a 6-1/2 year high of 1,399.62 points in June, was down by 0.6 percent at 1,385.62 points going into the close of the trading day.

The euro zone's blue-chip Euro STOXX 50 index fell 0.7 percent to 3,247.57 points, while Germany's DAX - which hit a record high in June - weakened by 0.5 percent to 9,961.70 points.

European stock markets fell after German industrial output declined by 1.8 percent on the month in May, its biggest drop in more than two years, confounding expectations of unchanged industrial output in Europe's powerhouse.

Central Markets' trading analyst Joe Neighbour expected that the weak data would contribute to the DAX staying below the 10,000 point level in the next few weeks.

James Butterfill, global equity strategist at Coutts, added that the German data showed that Europe's gradual economic recovery remained a patchy one.

"It rings alarm bells across Europe that the recovery is not a straight line upwards," said Butterfill.

TOTAL AND SANOFI SLIP

A fall in the shares of heavyweight stocks Total and Sanofi also pegged back European markets.

French oil major Total fell 1.4 percent after it said its margins would be affected by a weak performance of its refining business. French pharmaceuticals group Sanofi slipped 0.4 percent after it said adverse foreign exchange movements would affect its earnings.

But in spite of the pullback in equities, many traders expected European stocks to rally later this year, helped by the ECB's support for the euro zone economy, including last month's interest rate cut and ECB head Mario Draghi's plans to keep open the option of creating money, if needed.

"The near-term still looks positive. Mario Draghi's speech last week is still keeping a risk-on scenario," said Carlo Alberto de Casa, senior market analyst at online brokerage ActivTrades.

Europe bourses in 2014: http://link.reuters.com/pap87v

Asset performance in 2014: http://link.reuters.com/gap87v

Today's European research round-up (Additional reporting by Alistair Smout)