* FTSEurofirst 300 0.2 pct, Euro STOXX 50 0.3 pct
* Retailers down; Tesco, Debenhams fall after downgrades
* Spanish utilities fall on reform worries
* Spanish PMI leave traders questioning Europe recovery
LONDON, Dec 2 (Reuters) - Retailers led European shares lower around midday on Monday, as downgrades and bearish broker comment hit the likes of Tesco and Debenhams, while Spanish utilities were also under pressure on concerns over future sector reform.
Traders said Britain's biggest retailer Tesco, down 2.8 percent, was under pressure after HSBC downgraded its recommendation on the company to "underweight" ahead of results later this week with margins a major concern for the investment bank.
The European retail sector shed 0.8 percent.
UK-listed Debehams was the heaviest faller, down 4.6 percent and weighed on by a downgrade by Barclays, which also shifted its recommendation to "underweight" on earnings and margin worries.
The investment bank also cut its target price on the stock to 80 pence from 97 pence, which implies around 18 percent downside from the current share price.
Analysts said that worries about retailer's performance after Black Friday in the United States were also a factor, while Espirito Santo, referring to UK retailers, warned was very little in this month's spending trend to suggest its more cautious stance on the sector is unwarranted.
"Improvements in confidence seen earlier in the year have stalled and the sector performance remains disconnected from that subdued level of confidence," Espirito said in a note.
Weak manufacturing from Spain also did little to suggest that the recent recovery in Europe's economy was anything other than tepid.
"Spain's PMI data is surprisingly disappointing. Recent data has fuelled hopes of a turnaround, but clearly, we're not there yet. This was enough to trigger some equity selling programmes," said David Thebault, head of quantitative sales trading at Global Equities.
By 1137 GMT, the FTSEurofirst 300 was down 2.26 points, or 0.2 percent at 1,302.81.
UTILITIES IN HOT WATER
Utilities were also a big drag on the index, down 0.8 percent.
Spain's main utilities fell after the Finance Ministry withdrew 3.6 billion euros ($4.9 billion) in financing for the electricity sector in an unexpected amendment in Parliament, casting doubt on the reform and raising costs for companies.
Iberdrola, Gas Natural and Endesa fell as much as 2.4 percent.
And trade in UK utilities remained choppy after British Prime Minister David Cameron promised to cut rising energy costs.
In response, SSE and Centrica said they would cut energy bills.
More broadly, analysts and traders said the longer term up trend for European shares is likely to continue, supported by improving earnings and equity-friendly monetary policy from central banks.
JP Morgan and Deutsche Bank, which raised its 2014 target for the Stoxx 600 to 375 from 345, suggested there could as much as 15 percent upside from current levels.
European equity flows, which enjoyed a 22nd straight week of inflows from U.S. investors last week, remain supportive of the rally.
And Guardian Stockbroker's director Atif Latif said there is little in the way of resistance on the Stoxx 600 until the 400 level.