European shares slipped 1.5 percent by midday on Wednesday as the afterglow of a hefty U.S. rate cut faded rapidly, replaced by concerns over bank writedowns and earnings downgrades.

At 7:25 a.m. ET, the FTSEurofirst 300 index of top European shares was down 1.52 percent at 1,284.57 points, led lower by oil shares, which tracked crude prices, and banks.

BP fell 3.1 percent and Royal Dutch Shell slipped 3.3 percent as crude slipped more than $1.25 a barrel on concerns over the economy.

Writedown rumors dogged French bank Societe Generale, which fell as much as 5 percent, according to data from exchange operator Euronext. The bank declined to comment.

German chipmaker Infineon fell 6.1 percent, topping losers on the bluechip DAX index after its Qimonda unit posted a worse-than-expected first quarter operating loss.

There are fears of massive losses at different banks, and a worry that perhaps the crisis is not over in the sector, said Thierry Lacraz, strategist at Swiss bank Pictet.

Analysts feel that stock prices will adjust downward to accommodate an anticipated deterioration in earnings in the coming months.

Matthias Schellenberg, managing director at ING Investment Management, said: The uncertainty about corporate earnings growth in 2008 has risen, not only in the financial sector but ... elsewhere. The markets are expecting a flood of profit warnings in the next few months.

Around Europe, Britain's FTSE 100 was down 1.6 percent, Germany's cyclical-heavy DAX down 3.2 percent and France's CAC 40 .FCHI down 2.5 percent.

There was little solace for investors as so-called defensive utility stocks fell. E.ON and RWE slipped 4 percent.

As in recent days, trading in Europe was volatile, with the FTSEurofirst 300 swinging between a 1.6 percent gain and a 2.5 percent loss.

FALLING LIKE A STONE

The FTSEurofirst 300 has lost about 15 percent in value in January.

The index's gains last year slipped to 1.6 percent from 16 percent in 2006, with investors spooked by fears over the credit crunch prompted by a collapse in the U.S. subprime mortgage market which has sent ripples across the wider economy.

The Federal Reserve cut its main interest rate by 75 basis points on Tuesday in a surprise move to arrest an economic slowdown, lifting Asian shares.

The move by the Fed was positive for markets but its effects have not lasted in the European trading day, said Lacraz.

But if the Fed continues to be aggressive, and the U.S. stimulus package is sufficient, markets could agree to look beyond a difficult period of news flow from companies and the economy.

Economic data showing that euro zone services sector growth slipped more than expected in January while manufacturing activity steadied at subdued levels also depressed sentiment.

The RBS/NTC Flash Eurozone Services Purchasing Managers Index fell to 52.0 in January from 53.1 in December, its lowest since August 2003 and well below economists' forecasts of 52.8.

The survey also found that the equivalent factory PMI remained at the same level as December's 52.6, considerably above forecasts of a drop to 52.0.

The PMI report confirms that the pace of slowing in the economy is larger than that embedded in the ECB's (European Central Bank) staff forecasts. With further declines in the composite PMI on the cards in the coming months, the pressure on the ECB to ease will continue rising, said Jacques Caillous, head of euro area economics at RBS, which compiled the survey.

Swiss Re topped European gainers with a 5.5 percent rise, boosted by an increase in its buyback program and a reinsurance contract with U.S. investor Warren Buffett's Berkshire Hathaway, which also bought 3 percent of Swiss Re.

But shares in Swiss luxury goods group Richemont slumped 7 percent after the company said that U.S. and Japanese demand had cooled in late 2007.

(Additional reporting by Peter Starck in Frankfurt; Editing by Suzy Valentine)

Germany United kingdom European central bank