European stocks dropped, paring their biggest weekly gain in almost two months, as drugmakers retreated and a measure of business activity in the U.S. fell more than economists had projected.

A report today showed that Japanese industrial output rose 2 percent in May, the most since December 2011. Economists had projected that industrial production would climb 0.2 percent from the previous month, according to the median estimate in a survey.

In Europe, German retail sales rose in May more than economists had forecast. Sales adjusted for inflation and seasonal swings climbed 0.8 percent from April, when they fell a revised 0.1 percent, the Federal Statistics Office in Wiesbaden said. Economists had predicted an increase of 0.4 percent, according to the median of 23 estimates in a survey.

National benchmark indexes retreated in 14 of the 18 western-European markets today. France's CAC 40 Index dropped 0.8 percent and Germany's DAX Index slipped 0.4 percent. The U.K.'s FTSE 100 declined 0.6 percent, while Greece's ASE Index jumped 2.5 percent.

Air France-KLM retreated 2.8 percent to 6.89 euros. La Tribune reported that short- and medium-haul flights will weigh heavily on the airline's second-quarter results, according to La Tribune. The French newspaper did not identify its source.

Hannover Re lost 1.3 percent to 55.32 euros after Exane BNP Paribas SA downgraded the world's fourth-largest reinsurer to neutral from outperform, meaning that investors should not buy more of the shares. The brokerage cited deteriorating short-term trading conditions.

Mediaset climbed 2.8 percent to 2.90 euros after Credit Suisse raised its price target on the broadcaster to 4.40 euros from 2.65 euros. The brokerage cited growing evidence that the television-advertising markets in Italy and Spain have bottomed.

Serco jumped 2.7 percent to 616.5 pence after the U.K. services company said its investment in bidding for contracts and new market development activity has increased.