European stocks retreated from a five-month high today as talks between Greek officials and private creditors entered a third day.

The benchmark Stoxx Europe 600 Index slipped 0.4 per cent to 255.6 at 11.28am in London. The gauge has still advanced 4.5 per cent in 2012, the best start to a year since 1997, according to data compiled by Bloomberg.

"Most indexes have already risen as much as they were expected to for the whole year, so naturally investors are getting a bit cautious," said Witold Bahrke, a senior strategist at PFA Pension A/S in Copenhagen, which manages $45 billion. "Politicians are digging in to do the dirty work, which will create some turbulence in the week to come."

The Stoxx 600 has risen 2.6 per cent this week, heading for a fifth straight advance, amid signs the US economy is recovering, Europe will contain its debt crisis and speculation that China will ease lending curbs to spur economic growth. It became "overbought" for the first time in 14 months yesterday, as the 14-day Relative Strength Index, which tracks momentum by comparing closing prices with daily trading ranges, rose to 70.47. When the RSI climbs above 70, technical analysts say the underlying gauge is likely to fall.

Standard and Poor's 500 Index futures fell 0.2 per cent today, while the MSCI Asia Pacific Index rallied 1.1 per cent.

Greek officials and private creditors are meeting for a third day to seek agreement on a debt swap.

In October, European officials and bondholders agreed to implement a 50 per cent cut in the face value of Greek debt by voluntarily exchanging outstanding bonds for new securities, with a goal of reducing borrowings to 120 per cent of gross domestic product by 2020.

Bloomberg