European shares snap winning run as banks hit by ECB review
* FTSEurofirst 300 drops 0.7 percent
* Banks top sector faller hit by ECB asset quality review
* Heineken and Fortum fall after results
* EuroSTOXX 50 had been heavily overbought
LONDON, Oct 23 (Reuters) - European shares fell in early trade on Wednesday, after falls in banks following an asset quality review and disappointing earnings reports from the likes of Heineken took the steam out of a nine day rally.
The pan-European FTSEurofirst 300 fell 0.7 percent to 1,279.28 by 0759 GMT, retreating from a five year high, with all sectors in negative territory, even those usually resilient in falling markets.
Banks dropped 1.5 percent, hit after the European Central Bank's asset quality review demanded that banks boost their capitalisation, with traders also citing a media report that Chinese banks have tripled debt write-offs in the first half of this year fuelling the sell-off.
"The coverage of the assets being reviewed is quite broad... The 8 percent headline benchmark is higher than some had expected and may pose a challenge to smaller banks, particularly in the periphery," Michael Symonds, credit analyst at Daiwa Capital Markets, said.
Within the euro zone bank index, peripheral banks from Italy and Spain led fallers.
The top individual fallers were earnings driven. Brewer Heineken fell 4 percent after it reduced its full-year profit guidance due to a drop in sales in certain regions, leading the food and bevearge sector to a 0.3 percent drop.
The biggest loser on the FTSEurofirst 300 was Finnish utility Fortum, down as much as 6.9 percent after it reported a weaker-than-expected underlying third quarter profit, leading utilities to a 0.7 percent drop.
Utilities and food & bevearges are usually seen as "defensive" sectors which are favoured in times of uncertainty.
STMicroelectronics, British American Tobacco and Iberdrola all fell after results.
"Focus is definitely back on these earnings reports... and as equities don't like to head in the same direction for too long without some sort of pause, so it's no real surprise that there's a bit of nervousness at these levels," Alastair McCaig, analyst at IG, said.
McCaig added that with political concerns in the United States alleviated for the near term, we could push on higher again before year end.
"We've hit the snooze button on the U.S. debt ceiling alarm, and as it's going to be December when we're look at the budget and February before we focus on the debt ceiling again, so the overhanging negative pressure on equities has been lifted."
Stocks rallied strongly on the U.S. debt deal, and the FTSEurofirst gained for 9 straight sessions.
The euro zone Euro STOXX 50 index fell 0.9 percent to 3,018.05 points. At Tuesday's close it was at its most "overbought" since 2006, when its 14-day Relative Strength Index, a measure of buying momentum, hit 73 points.
A reading above 70 indicates "overbought" conditions. The Euro STOXX 50 has fallen each time its RSI came close to 73 over the past seven years. Germany's Dax was also in "overbought" territory by the same indicator.