* FTSEurofirst 300 down 0.4 pct, Euro STOXX 50 falls 0.2 pct
* DAX falls 0.6 pct, hit by drop in German retail sales
* ThyssenKrupp falls after UBS downgrade
* Most traders see no abrupt scaling back of Fed's stimulus
By Sudip Kar-Gupta
LONDON, July 31 (Reuters) - European shares edged lower on Wednesday as a fall in German retail sales dented sentiment, while investors were reluctant to add big equity positions ahead of a U.S. Federal Reserve policy announcement later in the day.
The pan-European FTSEurofirst 300 index was down 0.4 percent at 1,201.69 points in early session trade, while the euro zone's blue-chip Euro STOXX 50 index also fell 0.2 percent to 2,753.62 points.
Germany's DAX fell 0.6 percent to 8,234.69 points after data showed German retail sales fell 1.5 percent on the month in June, their biggest drop this year.
Hendrik Klein, head of high-frequency trading and asset management firm Da Vinci Invest AG, said the index could fall to 8,000 points. "The market rally is losing steam," he said.
Others said likely fluctuations in the economic data the Fed watches most closely could help support equities.
"This is likely to discourage the Federal Open Market Committee from exiting its quantitative easing programme too early," Central Markets chief strategist Richard Perry said. "Therefore, expect stock markets to continue to push higher for now."
THYSSEN KRUPP FALLS
Germany's DAX is up around 8 percent since the start of 2013 after rising 29 percent in 2012, but has shown signs of weakness in recent sessions, hit by profit warnings from engineer Siemens and chemicals group BASF last week.
Another German stock was among the worst performers on the FTSEurofirst 300 on Wednesday, with steelmaker ThyssenKrupp hit by a UBS downgrade.
On Wednesday, French bank BNP Paribas posted a smaller-than-expected drop in profits while German drugmaker Bayer warned its full-year profit target had become more challenging to meet.
According to Thomson Reuters StarMine data, 58 percent of the companies on the pan-European STOXX 600 index have beaten or met market forecasts with their second quarter earnings, while 42 percent of companies have missed forecasts.
Expectations the Fed will scale back stimulus that helped drive the global equity rally have pushed the FTSEurofirst 300 index from a five-year high of 1,258.09 points hit in late May.
The index remains up 6 percent since the start of 2013 and Andreas Clenow, hedge fund trader and principal of ACIES Asset Management, expected a slow rise over the rest of the year.