By Sarah Turner

European shares declined for the first time in three sessions on Monday, with German auto giants Daimler and Volkswagen dragging after downgrades at separate brokerage firms.

The pan-European Dow Jones Stoxx 600 index declined 0.4% to 229.75.

The index closed at its highest level since Nov. 4 on Friday following a key report that showed far fewer job losses in the U.S. during July than expected.

On Monday, Daimler (DAI) shares fell 3.2% after Morgan Stanley cut its stance on the firm to underweight from overweight as it sees risks to 2010 estimates and a stretched valuation for the stock.

"The simplest assessment of 2010 is that the market expects substantial growth in revenues and profits across the group. We expect anemic growth at best -- materially negative at worst," the broker said.

"We see an average 20% downside to our price targets for the European auto stocks under our coverage. By contrast, we see around 30% downside at Daimler," it added.

Other autos notably under pressure on Monday included Volkswagen , down 3.3%.

It was cut to underweight from neutral by HSBC, with the broker saying that after Porsche sells its VW options, the squeeze on the free float will end, driving VW's valuation toward fundamentals. It also could fall out of the German DAX and Euro Stoxx 50 in the second half, HSBC said.

On a regional level, the German DAX index declined 0.4% to 5,436.17, the French CAC-40 index lost 0.5% to 3,504.53 and the U.K. FTSE 100 index lost 0.5% to 4,709.84.

U.S. stock futures were pointing to a mildly lower open on Wall Street on Monday, with Dow Jones Industrial Average futures down 10 points. Asia markets were higher.

Mineral extractors were also weak in Europe, with BHP Billiton (BHP) down 1.6% and Anglo American shares down 2.3%.

Rio Tinto shares (RTP) declined 1.5%.

Shares of the mining giant were weighed down in Australian trading on Monday following reports that a watchdog group for China's Communist Party has accused the company of overcharging for its iron ore.

Deals were also a focus on Monday, with Friends Provident shares up 7.6% after the insurance firm received an improved buyout offer from Resolution.

Shares of French advertising company Publicis advanced 3.1%.

Over the weekend, the firm said it will buy Microsoft Corp.'s digital-marketing unit Razorfish for $530 million.