* FTSEurofirst 300 down 0.7 pct, Euro STOXX 50 off 0.8 pct
* Celesio slides after takeover fails
* Volkswagen shares hit by UBS downgrade
LONDON, Jan 14 (Reuters) - European shares fell on Tuesday, taking their cue from Wall Street, which suffered a steep sell-off following a string of disappointing earnings and outlook statements.
Shares in German drugs distributor Celesio shed 6.5 percent after suitor McKesson failed to garner enough shares to carry through its takeover bid.
Trade in Celesio shares rocketed, with the issue logging 130 percent of its 90-day average volume in the first 40 minutes alone.
Volkswagen was another big faller, down 2.7 percent, knocked by a UBS downgrade to "sell" from "neutral".
"We ... expect some earnings improvement but we are more concerned about the amount of capital poured into the operating business partly to meet CO2 requirements and finco capital rules, both of which are negative for returns," the investment bank wrote in a note.
At 0842 GMT, the FTSEurofirst 300 index of top European shares was down 0.7 percent at 1,315.71 points, while the euro zone's blue-chip Euro STOXX 50 index was off 0.8 percent at 3,087.98, both retreating from recent five-year highs.
A number of mid-sized companies including SodaStream , Lululemon Athletica, Express Inc and Aaron's posted weak earnings or forecasts on Monday, contributing to a 1.1 percent drop on the Dow Jones industrial average, while the S&P 500 lost 1.3 percent and the Nasdaq Composite fell 1.5 percent.
This served as negative news for investors poring over earnings for clues as to the likely strength of the European fourth-quarter corporate reporting season, which will gather pace in the last week of the month.
The Euro STOXX 50 Volatility index - known as Europe's 'fear gauge' - rose 2.7 percent, signalling a drop in demand for risk.
"It is a concern that even though the balance of the macro data has continued to show a steady improvement across most of the developed economies that it's not shown up in earnings numbers," Peel Hunt equity strategist Ian Williams said.
"Until we get the earnings support, it's difficult to see why we would get much more of a valuation upside."
The STOXX Europe 600 is trading at 13.7 times expected earnings over the next 12 months, above a 10-year average P/E of 12 times, Thomson Reuters Datastream data showed.
Gain Capital technical analyst Fawad Razaqzada saw scope for more near-term weakness on the Euro STOXX 50, which could "pull back towards support at 3,050, and possibly lower".