European shares turned positive and the euro pared losses on Wednesday after the head of the European Commission said it would soon present options for the introduction of euro area bonds.

Those comments from Jose Manuel Barroso helped reverse earlier losses for the single currency and European stocks due to a downgrade of two big French banks' credit ratings.

Global markets have been roiled since the end of July by the twin fears of a recession in the United States and Europe's protracted debt woes, which have forced Greece, Ireland and Portugal to take bailouts and piled bond market pressure on Italy and Spain.

French President Nicolas Sarkozy and German Chancellor Angela Merkel are due to talk with Greek Prime Minister George Papandreou on Wednesday, with investors concerned by the lack of decisive action and chance Athens will soon default.

A lack of leadership is really a matter of concern for the market. A lot of worries are now focused on Germany in terms of splits there on how to deal with the region's debt crisis, said Keith Bowman, equity analyst at Hargreaves Lansdown.

The FTSEurofirst 300 <.FTEU3> index was 0.6 percent, but the index is down about 20 percent so far this year.

Banks remained under pressure, with the European sector index <.SX7P> down 0.5 percent, Societe Generale down 3 percent and BNP Paribas down 4.5 percent.

DEFAULT, DOWNGRADES

Moody's Investors Service cut its ratings for French banks Credit Agricole and Societe Generale on Wednesday, citing their exposure to Greece.

Confidence in the euro zone was further dented on Tuesday when Italy, where lawmakers vote later on an austerity package at 1800 GMT, was forced to pay the highest interest rates since joining the euro in 1999 to sell 5-year bonds.

Italy is a particular concern because, while Europe's bailout fund can cope with rescuing smaller, peripheral nations, it lacks the financial firepower to save the euro zone's third largest economy.

Markets had been spooked in recent days by renewed talk among euro zone policymakers of an imminent default by Greece, prompted by the country's failure to meet the fiscal goals set out in its European Union/IMF bailout.

The euro was down 0.1 percent at $1.3658 against the dollar, jumping from around $1.3630 before the comments from Barroso.

(Editing by)

Portugal Germany BNP Paribas