U.S. services data snuffs out Europe stock rally

LONDON, July 3 (Reuters) - A rally in European shares was cut short on Thursday after U.S. data showed the service sector contracted unexpectedly in June.

The Institute for Supply Management said its non-manufacturing index fell to 48.2 in June from 51.7 in May, below forecasts for 51.0. The service sector accounts for about 80 percent of total U.S. economic activity.

Financials were still the top performing sector in Europe, having got an earlier boost from the European Central Bank, which suggested it may not need to tighten monetary policy further after it delivered a widely expected rate rise.

BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz) rose 2.6 percent, German insurer Allianz (ALVG.DE: Quote, Profile, Research, Stock Buzz) gained 1.9 percent and Societe Generale (SOGN.PA: Quote, Profile, Research, Stock Buzz) rose 2.9 percent.

By 1410 GMT the FTSEurofirst 300 index of top European shares was down 0.2 percent at 1,165.45 points, having risen earlier to a session high of 1,181.81, marking a gain of 1.2 percent on the day.

The index was on track for its most volatile day of trade since March 31, according to Reuters data.

Oil and gas shares were still the largest drag on the index, as BP (BP.L: Quote, Profile, Research, Stock Buzz), Total (TOTF.PA: Quote, Profile, Research, Stock Buzz) and BG Group (BG.L: Quote, Profile, Research, Stock Buzz) lost between 1.3-3.7 percent.

(Reporting by Amanda Cooper)