Mining stocks are set to come under further pressure next week on expectations gold will extend its recent sell-off, taking some shine off European stocks which hit multi-year highs this week, analysts said.
And in the final week before Christmas, trading is expected to be thin with few major corporate events due. Analysts say position squaring will keep the wider market under slight pressure ahead of the new year.
"Heading into Christmas I would expect no real news coming out and volumes thinning down. People will lock in profits which would create slight downward pressure.
On mining shares they will also come under pressure in the short term," said Kevin Doran, chief investment officer at Brown Shipley.
The DJ Stoxx basic resources index has slipped in the recent sessions after hitting its lifetime high on Monday. Gold hit a quarter-century peak earlier this week above $540 but slipped below $500 and is seen heading for $490 next week.
The FTSEurofirst300 hit a 3-1/2 year peak of 1,274.08 on Monday and was trading up 0.6 percent at 1,267.15 points by 1025 GMT.
Many analysts see a recent fall in basic resources shares as a necessary correction after a stellar rally and they say commodity stocks will resume their gains in 2006.
"Company news will be very thin but commodities are very much in focus. You want to have a full weighting in basic resources in your portfolio," said Hilary Cook, director of investment strategy at Barclays Stock Brokers.
Morgan Stanley isolates Rio as set to benefit most from continuing upward momentum in resource stocks.
"Against a background of ongoing strong commodity price momentum and an asset base that is ideally placed to benefit from Chinese demand pull, Rio Tinto shares are more attractively valued than at any time since the late 1980s."
The bank raised Rio Tinto's price target to 3,300p on Thursday from 2,950p.
"We believe the stock is mis-priced by at least 25 percent, reflecting a too-bearish consensus view of both 2006 and long-term commodity price forecasts," the bank said in a note.
Shares in the London Stock Exchange will be also in focus after it rejected a 1.5 billion pound bid from Macquarie Bank. The London stocks exchange was trading around 617p, down from its record high of 640p set on Monday.
Investors are also expected to keep a close eye on bank stocks ahead of Morgan Stanley's fourth-quarter results on Wednesday.
Also in that sector, Italy's banks will stay in focus after reports that Bank of Italy Governor Antonio Fazio is under criminal investigation for insider trading in a take-over case.
Among constituent changes in the CAC, DAX, FTSE 100 and Stoxx indexes Kazakhstan miner Kazakhmys, floated in London in October, and housebuilder Persimmon join the FTSE 100 after the close of business on Friday.
Whitbread and William Hill are relegated to the Midcap 250 index in the group's latest quarterly review.
Key European data releases include the minutes of the Bank of England's policy meeting earlier this month when it held interest rates steady, due on Wednesday.