European shares were lower at midday on Tuesday, dragged down by financials ahead of earnings news from major U.S. banks and after prominent sector analyst Meredith Whitney downgraded her rating on Goldman Sachs (GS.N).

By 1042 GMT, the pan-European FTSEurofirst 300 .FTEU3 index of top shares was down 0.4 percent at 1,001.85 points.

The benchmark index is up more than 55 percent from its lifetime low of March 9 and 19 percent for the year, but is still down 39 percent from its mid-2007 peak.

Investors now are in wait-and-see mode. They are waiting for earnings news, with major U.S. financial companies beginning to report tomorrow, said Philippe Gijsels, strategist at Fortis Bank.

Everyone would like to see top-line growth, but I think it is possible companies could disappoint on this.

Financials featured among the worst performers, with banks taking the most points off the index.

A downgrade by Whitney on Goldman to neutral from buy also put pressure on the market. Whitney shot to fame by predicting much of the banking sector meltdown.

Deutsche Bank (DBKGn.DE) shares slipped 1.4 percent as traders cited market speculation that Germany's biggest bank may be planning a capital increase.

Banco Santander (SAN.MC), Barclays (BARC.L), HSBC (HSBA.L), Credit Suisse (CSGN.VX) and Lloyds Banking Group (LLOY.L) were down 0.9 to 3.1 percent. Insurers were hard hit. Allianz (ALVG.DE), Axa (AXAF.PA) and Admiral Group (ADML.L) were 1 to 1.7 percent lower.

OIL STOCKS HIGHER

On the upside, energy stocks added the most points to the index as crude CLc1 gained 1.1 percent. BG Group (BG.L), Dana Petroleum (DNX.L) and Total (TOTF.PA) were up 0.3 to 2.4 percent.

ArcelorMittal (ISPA.AS), the world's largest steelmaker, was 1.7 percent higher after a bullish Goldman Sachs note on the Asian steel sector.

Whitbread (WTB.L), Britain's biggest hotel operator, gained 2.1 percent after it reported a better-than-expected first-half pretax profit boosted by strong growth at its Costa Coffee chain.

Turning to economic news, German analyst and investor sentiment unexpectedly fell for the first time in three months to hit its lowest level since July, a closely-watched survey showed on Tuesday.

The Mannheim-based ZEW economic think tank's monthly poll of economic sentiment fell to 56.0 from 57.7 in September. The consensus forecast in a Reuters poll of analysts last week was for a rise to 58.3.

The ZEW expectations fell short of forecasts, but the index is still at a high level signalling growth. ... The fact that the ZEW has stagnated overall suggests that the Ifo institute's business climate index cold head sideways in October too, said Ralk Umlauf at Helaba.

Across Europe, the FTSE 100 .FTSE index was down 0.1 percent, Germany's DAX .GDAXI was 0.4 percent lower and France's CAC 40.FCHI slipped 0.3 percent.

Germany Investment Goldman sachs Down