By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets dropped on Friday as investors waited for inflation data for the euro zone, which will be closely watched for any signs of the threat of deflation.

The Stoxx Europe 600 index fell 0.1% to 336.99, trimming its monthly gain to 4.5%.

Shares of Serco Group PLC led the list of gainers, rallying 10%, after the government-services company appointed Aggreko PLC's Rupert Soames as chief executive from June 1.

Old Mutual PLC advanced 4.4% after the investment firm lifted its full-year dividend and said adjusted operating pretax profit rose last year on a constant currency basis.

On a more downbeat note, shares of Pearson PLC slumped 8.1% after the publisher said full-year operating profit declined due to weakness in its U.S. education business.

In Europe, the main event is the release of preliminary inflation data for February, which could add more pressure on the European Central Bank to loosen policy at its meeting next week. Economists worry that the region is heading for deflation that could hamper its fragile recovery, although ECB President Mario Draghi stressed late Thursday that the euro area clearly is not in deflation at the moment.

Consumer prices rose 0.8% in January, but economists fear inflation could have dropped to 0.6% in February. The data are out at 10 a.m. in London, or 5 a.m. Eastern Time.

At the same time, unemployment numbers for the currency bloc are out, expected to come in at 12% for January.

Ahead of the releases, Germany's DAX 30 index rose 0.1% to 9,599.35, and France's CAC 40 index lost 0.1% to 4,390.93. The U.K.'s FTSE 100 index dropped 0.2% to 6,796.81.

U.S. stock futures pointed to a lower open on Wall Street after the S&P 500 index (SPX) closed at an all-time high on Thursday. The optimistic sentiment was spurred by dovish comments from Fed chief Janet Yellen, who reaffirmed the central bank's accommodative policy and assured markets that the Fed can make adjustments to tapering if needed.

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