* FTSEurofirst 300 down 0.4 percent
* Philips lower as sale of Lumileds in doubt
* Peugeot down after Q3 results
* Today's European research round-up (Adds closing prices)
By Danilo Masoni and Alistair Smout
MILAN/LONDON, Oct 26 (Reuters) - European shares drifted lower on Monday as the effect of China's rate cut faded, although German stocks outperformed after a business sentiment survey came in better than expected.
The pan-European FTSEurofirst 300 index was down 0.4 percent at 1,484.52 points at the close, after rising 1.95 percent in the previous session. The euro zone's blue-chip Euro STOXX 50 index was down 0.3 percent.
Germany's DAX outperformed other European indexes, up 0.1 percent, helped by strong gains in utility RWE after a coal reserve deal.
The DAX extended gains after a survey showing business morale fell less than forecast in October, suggesting Europe's largest economy is holding up in the face of a slowdown in China and a scandal at carmaker Volkswagen.
The DAX remains down around 12 percent since April.
"The DAX was punished by the scandal at Volkswagen, and it seemed overly sold during the global sell-off in the summer. But those moves were overdone," said Lorne Baring, managing director of B Capital Wealth Management.
The index was a key beneficiary of a rate cut by China on Friday which spurred shares higher. Traders attributed Monday's muted moves to caution ahead of other central bank meetings this week.
"Asia hasn't really reacted positively to the China rate cut, and what we are seeing is a natural pull-back of markets in Europe," said CMC Markets market analyst Jasper Lawler.
"Probably, given there is a Federal Reserve meeting on Wednesday and there have been massive gains last week, I wouldn't be surprised to see the markets chop around," he said.
Volumes were low, with just three quarters of the 90-day average volume for the FTSEurofirst 300 traded.
Peugeot fell 3.6 percent even though the French carmaker reported a 3.2 percent increase in third-quarter revenue, as investors were discouraged by a sharp drop in its sales in Asia. The stock has gained 59 percent this year as Peugeot, along with other European carmakers, benefited from a weaker euro.
Technology group Philips also fell after reporting results that beat expectations. Its shares were down 0.4 percent, off their lows, on reports the U.S. government objected to the $3.3 billion sale of its Lumileds division to a mostly Chinese consortium.
WPP fell 2.2 percent, as traders said investors fretted about economic slowdowns in China and Brazil, although the world's largest advertising company said it would meet its full-year forecasts.
With 20 percent of STOXX Europe 600 companies having reported quarterly earnings, 60 percent have beaten or met expectations. On the U.S. S&P 500, that proportion rises to 74 percent.
Germany's Dialog fell 20 percent, the top STOXX Europe 600 faller, after results that were released early missed consensus estimates.
Among risers, Aberdeen Asset Management rose 2.9 percent. A Financial Times report that Aberdeen was looking for a buyer was enough to push the shares higher, although the company denied the report. (Editing by Hugh Lawson)