Europe's stock rally pauses as euro steadies

* FTSEurofirst 300 down 0.2 pct, slips from seven-year high

* Strong negative correlation between euro, European stocks

* DAX set for longest streak of weekly gains since 1998

* Shares (Berlin: DI6.BE - news) in Eni (NYSE: E - news) drop 5.4 pct after dividend cut, capex slashed

By Blaise Robinson and Francesco Canepa

PARIS/LONDON, March 13 (Reuters) - European stocks slipped on Friday, taking a breather from their almost-uninterrupted rally since the start of the year, with energy and mining shares falling along with commodity prices.

Resource-related stocks led the retreat as French oil major Total (Swiss: FP.SW - news) fell 2.7 percent and global mining company Rio Tinto dropped 1.9 percent.

Shares in Eni sank 5.4 percent after the Italian energy firm cut its dividend, slashed investments and suspended its share buyback programme.

Spain's Sabadell was down 3.5 percent, falling for a second day. A source told Reuters the bank was considering a 1.5 billion-euro capital increase via a share issue to fund a bid for Britain's TSB, which was announced on Thursday.

Commerzbank (Xetra: CBK100 - news) surged 4.1 percent, with traders citing relief that a U.S. fine announced the previous day was in line with market expectations.

The recent drop by the euro helped fuel the rally in the region's stocks. Now (NYSE: DNOW - news) investors are wary of a technical bounce in the euro in the coming days that could trigger a bout of profit-taking in equities.

"European stocks are driven by the forex market, big time," said Nicolas Cheron, market analyst at FXCM (NYSE: FXCM - news) in Paris.

"The drop in the euro has played a major role in the stock rally in Europe in the past few months even before quantitative easing was launched, and now, with short positions on the euro reaching extreme levels in the short term, European stocks look vulnerable to a pull-back if the currency bounces."

The euro rose on Thursday, rebounding off 12-year lows against the dollar, although the single currency was back on the defensive on Friday.

At 1437 GMT, the FTSEurofirst 300 index of top European shares was down 0.2 percent at 1,572.07 points.

Germany's DAX, up 20 percent so far this year, was flat. The index was set to post a 2.1 percent gain on the week, its ninth consecutive weekly gain, the longest winning streak in 17 years for the German benchmark.

"So much of the positives on the European market is in the price," Paul Chesterton, a senior trader at Peregrine & Black, said. "I can't help feeling it's looking a bit stretched here."

European stocks have strongly outperformed Wall Street so far in 2015, helped by the European Central Bank's bond-buying programme, which has been driving the euro lower and prompted global investors to increase their exposure to European stocks.

According to Bank of America Merrill Lynch Global Research, European equity funds have enjoyed $36 billion in inflows so far this year. U.S. equity funds have seen redemptions of $47 billion over the same period.

Europe bourses in 2015: http://link.reuters.com/pap87v

Asset performance in 2015: http://link.reuters.com/gap87v

Today's European research round-up

(Editing by Larry King)