European stock rally stalls, drops from January high

* FTSEurofirst 300 down 0.2 pct

* Index rallies off lows after German ZEW

* Alstom (Paris: FR0010220475 - news) drops on capital hike talk

* BHP fails to lift miners after strong rally

By Alistair Smout and Joshua Franklin

LONDON, Feb 18 (Reuters) - Europe's top shares fell on Tuesday, led down by construction firms, with a key index set for its biggest fall since the beginning of the month following a two-week rally.

The pan-European FTSEurofirst 300 was down 0.2 percent at 1,333.94 at 1215 GMT, just off its highest level in three weeks, and down for only the second time in 10 sessions.

The index rallied off intraday lows after German ZEW sentiment data. Although the release was mixed, the German DAX slowly pared losses after ZEW President Clemens Fuest said a drop in headline sentiment "must not be overstated".

"It's a rather muddled set of numbers. Confidence (BSE: CONFIDE.BO - news) is waning a little bit but I think Germany is a powerhouse and you shouldn't really be worried about Germany," said Joe Rundle, head of trading at ETX Capital.

Top (Taiwan OTC: 8419.TWO - news) faller on the index was French engineer Alstom (TLO: ALSO.TI - news) , down 5.1 percent to a nine-year low on worries about a possibly capital hike after Bouygues (Other OTC: BOUYF - news) wrote down the value of its stake in Alstom by 1.4 billion euros ($1.92 billion) on Monday. Bouygues fell 2.4 percent.

Construction firms were the biggest sectoral faller, with Lafarge (Munich: CIL.MU - news) and Holcim (Other OTC: HCMLF - news) down 3.3 percent and 1.8 percent respectively after being cut to "sell" from "neutral by Goldman Sachs (NYSE: GS-PB - news) .

Sector peer Hochtief (Other OTC: HOCFF - news) rose 4.6 percent, however, after the U.S. investment bank lifted its rating on the stock to "buy" from "neutral".

The FTSEurofirst had gained 5.2 percent in just eight sessions before Tuesday, fuelled by a rally in basic resources stocks, which eased off on Tuesday.

Good results from heavyweight miner BHP Billiton (NYSE: BBL - news) , up 1.4 percent and the index's third biggest riser, failed to lift the sector, which suffered from a weaker copper price.

"The BHP results didn't look too bad, but after a good run-up and with a weaker metal price, other miners are in negative territory," said Manoj Ladwa, head of trading at TJM Partners (Other OTC: PGPHF - news) .

"It should be a pretty good year for the mining stocks ... with the cost-cutting measures they've taken. But if the broader market is going higher, it's going to need the commodity stocks to push on from here."

Europe bourses in 2014:

Asset performance in 2014:

Today's European research round-up