European shares fell for the sixth consecutive session in low volume on Thursday after German Chancellor Angela Merkel restated her position against changing the role of the European Central Bank to ease the euro zone debt crisis.

The market trimmed gains after the comments by Merkel about the ECB as well as remarks that she remained opposed to the use of jointly issued euro bonds to combat the region's debt crisis.

The comments about the ECB were a clear message to the market not to expect anything in the short-term, Veronika Pechlaner, a fund manager on the Ashburton European equity fund, said.

The market is looking toward the ECB as it only has the firepower necessary to help the situation. The question is how much systemic risk do you get before something is done.

Banks <.SX7P>, which have been in focus due to their exposure to the region's sovereign debt, pared earlier gains.

But after a sell-off of 10 percent over the past five days many banking stocks were in oversold territory after the <.SX7P> Relative Strength Index (RSI) came close to 30 on Wednesday and technical factors kept the <.SX7P> up 1 percent.

The RSI is a technical momentum indicator comparing the magnitude of recent rises with recent falls to determine oversold or overbought conditions. A reading of 30 or below is considered oversold, while 70 and above is overbought.

The main mover in the banking sector was Belgian lender Dexia , up 27.9 percent, after a French Finance Ministry source said an agreement to guarantee the troubled bank's financing would be reached within days.

Dexia's RSI fell into oversold territory at the beginning of October and is down 65.9 percent since October 4 after it emerged it would need state aid from France and Belgium.

On Wednesday Dexia's RSI was at 22.8, but had risen to 34.8 on Thursday.

Portuguese banks featured heavily on the downside in the banking sector after Fitch downgraded Portugal's credit rating to junk status because of its large fiscal imbalances, high debt and concerns about its austerity programme.

A Reuters poll showed that economists have slashed growth forecasts for the periphery countries from next year and 2013 and expect it will be years before the debt ridden countries recover from the crisis.

Portugal's PSI 20 <.PSI20> was down 0.9 percent underperforming the pan-European FTSEurofirst 300 <.FTEU3> index of top shares which closed down 0.3 percent at 899.50 points in choppy trade, having been up as much as 913.13 and down as low as 894.37.

Volume on the FTSEurofirst 300 index was low at 76.8 percent of its 90-day daily average due to a public holiday in the United States.

FUND MANAGERS CAUTIOUS

Fund managers were wary about investing in banks because they were oversold.

Banks are not investable in the euro zone at the moment. Clearly there are people trading the banks shares, but there is no clarity on the quality of the balance sheets, David Coombs, fund manager at Rathbone Brothers, which has $24.2 billion under management, said.

(Reporting by Joanne Frearson, Editing by Helen Massy-Beresford)

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