Auto sector drags European shares off five-year high

* FTSEurofirst 300 down 0.3 pct, off 5-year high

* Auto stocks lead fallers as data points to drop in sales

By Francesco Canepa

LONDON, Sept 17 (Reuters) - Auto stocks dragged European shares off a five-year high on Tuesday as data showing a drop in car sales last month doused recent investor optimism on the sector.

Investors refrained from making large bets on equity indexes as the U.S. Federal Reserve's policy committee met to decide on an expected slowing down of its stimulus programme, which has helped European shares rally 30 percent in the past year.

Auto shares were the biggest fallers, with the related subindex down 1.3 percent, after data showed European car sales fell 4.9 percent last month. That fuelled some profit taking on a 21 percent rally in the sector since July in light of better European economic data.

"The recovery is going to be a bit slow and a bit bumpy," said Mark Hargraves, who manages 4 billion euros ($5.34 billion) for AXA Framlington. "I think (auto stocks) are going to grind higher but they are going to be vulnerable to the newsflow."

Hargraves said he remained comfortable with his holdings in Valeo (Paris: FR0000130338 - news) , Continental (LSE: 0LQ1.L - news) , Michelin (Paris: FR0000121261 - news) and Nokian Renkaat (Other OTC: NKRKY - news) given the sector's long-term recovery potential as the European economy returns to growth.

The pan-European FTSEurofirst 300 was down 0.3 percent at 1454 GMT to 1,254.97 points after closing at its highest level since June 2008 in the previous session.

Better-than-expected economic data has helped the index rally around 13 percent since its June low, made after the Fed's first hint about scaling back its bond-buying programme.

Investors increased their allocation to British and euro zone shares to 11- and six-year peaks in September and cut global bonds to a seven-year low as they positioned for higher growth and inflation, a poll by Bank of America Merrill Lynch showed.

The Fed's committee begins a two day meeting on Tuesday which is set to signal the start of the "tapering" process, with asset purchases expected to be reduced by $10 billion a month.

"Markets are anticipating a little bit of tapering and it could well be a bit of a travel-and-arrive kind of trade," Bank of America Merrill Lynch European investment strategist John Bilton said.

"Our own view as a house is that it is likely to be delayed or smaller than anticipated because some of the data points that have come out have not exactly been 100 percent convincing for the U.S. (economy)."