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European shares hit 2-month low; Peugeot sinks

* FTSEurofirst 300 down 0.2 pct, Euro STOXX 50 down 0.2 pct * FTSEurofirst 300 down 4.8 percent in two weeks * Peugeot shares tumble again as GM offload stake * Investment flows into Europe stocks still buoyant -Lipper By Blaise Robinson PARIS, Dec 13 (Reuters) - European stocks inched lower on Friday in light volumes, adding to a near 5 percent pullback in two weeks, as investors remained on edge before next week's U.S. Federal Reserve policy meeting.

A recent batch of strong U.S. economic data has fuelled speculation that the Fed could start winding down its stimulus measures as soon as next week. That has prompted investors to book profits on risky assets which have strongly benefited from the central bank's massive liquidity injection.

The FTSEurofirst 300 index of top European shares lost 0.2 percent, to 1,242.68 points, after hitting a two-month low earlier in the session.

The benchmark index, which was up 15 percent on the year at the end of November, has dropped about 4.8 percent since then, its biggest decline in six months.

"For now, we're waiting for the Fed meeting next week before re-entering the market, although the recent slide is creating good buying opportunities," Barclays France director Franklin Pichard said.

Around Europe, UK's FTSE 100 index lost 0.1 percent, Germany's DAX index fell 0.1 percent and France's CAC 40 dipped 0.2 percent.

The euro zone's blue-chip Euro STOXX 50 index lost 0.2 percent at 2,921.92 points.

Shares in UK insurer RSA were among the biggest losers, down 7.2 percent after the group warned earnings would fall in 2013 and that it might cut its dividend, leading the CEO to resign.

Struggling French carmaker PSA Peugeot Citroen tumbled 12 percent, extending the losses from Monday night to 24 percent, after U.S. alliance partner General Motors sold its 7 percent stake at a steep discount, a day after Peugeot announced a big writedown and confirmed that it was mulling a capital increase.

Peugeot's stock remains one of the most shorted across Europe. Some 13.4 percent of its shares are out on loan, according to data from Markit, as hedge funds bet the share price will fall further.

"A lot of hedge funds have been expecting a capital increase, so borrowing of the shares have been brisk. The GM stake sale is a bonus," said David Noble, risk arbitrage trader at Louis Capital Markets, in London.

Despite the broad pull-back in European stocks in December, the asset class continued to see strong investment inflows.

According to Thomson Reuters' Lipper data, European equities enjoyed a 24th straight week of inflows from U.S. investors in the seven days to Dec. 12.