European shares were lower at midday on Wednesday after sharp gains in the previous session on global economic recovery hopes, with banking and industrial engineering shares leading the decline.

Investors awaited results from aluminium giant Alcoa (AA.N), due to kick off the third-quarter earnings season in the United States.

At 1135 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was 0.4 percent lower at 988.98 after jumping 2.2 percent in the previous session. The benchmark index is up 19 percent this year and has surged 53 percent since hitting a record low in early March.

Banks lost ground after hefty gains on Tuesday. Standard Chartered (STAN.L), Barclays (BARC.L), Lloyds (LLOY.L), BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA) fell 0.1-2.4 percent.

This is a market which is possibly overextended. A lot of good news potentially is going to come on the macro side in the next few months, but it should already be in the price and I can't therefore see why that should drive the market higher, said Peter Dixon, economist at Commerzbank.

Earnings will continue to recover. I don't think there should be anything in these numbers which really scare people off, unless expectations are too high, he said.

Santander (SAN.MC) fell 1.3 percent following a 14.1 billion reais ($8.05 billion) initial public offering in its Brazil unit.

Shares in industrial engineers also slipped, with ABB (ABBN.VX) and Alsthom (ALSO.PA) down 1.5-2.0 percent.

Across Europe, Britain's FTSE 100 index .FTSE, Germany's DAX .GDAXI and France's CAC 40 .FCHI fell 0.2-0.5 percent.

MINERS LOSE GROUND

Miners weakened after jumping in the previous session on record high gold prices and stronger base metals.

BHP Billiton (BLT.L), Anglo American (AAL.L), Antofagasta (ANTO.L), Rio Tinto (RIO.L), Xstrata (XTA.L) and Eurasian Natural Resources (ENRC.L) fell 0.1-2.2 percent.

Analysts remained sceptical about the rally in commodities.

Commodity demand isn't rising. Commodity prices are fooling us, because you have the cloak of the dollar over them. Take off the cloak and commodities will look weak, said Justin Urquhart Stewart, director at Seven Investment Management.

It's fool's gold. Growth will continue to be weak. But every time there's a dip, there are certain mangers sitting on cash, desperate to get in. We could be in a trading range.

J Sainsbury (SBRY.L), Britain's third-biggest grocer, fell 2.8 percent after posting slower quarterly sales growth and saying growth in the industry would moderate further as food price inflation eases.

In macro-economic news, the euro zone's economy shrank more than previously thought in the second quarter of 2009 because contributions from household demand and trade turned out to be smaller than initially estimated.

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