* FTSEurofirst flat, Euro STOXX 50 down 0.3 pct
* Indexes off intra-day low as investors buy into early dip
* Telecoms shares fall on outlook concerns
* Vodafone hit as takeover speculation dented
By Francesco Canepa
LONDON, April 3 European shares were flat on Wednesday, consolidating hefty gains in the previous session, with heavy falls in the telecoms and mining sectors offsetting a rally in defensive shares.
Shares in telecoms heavyweight Vodafone fell 2.4 percent after its U.S. partner Verizon denied reports of a joint bid for the UK firm with AT&T, denting expectations that had helped the shares rise nearly 14 percent since early March.
The slide knocked 0.6 points off the FTSEurofirst 300 index , which was down 0.4 points at 1,203.36 points by 1125 GMT after rising nearly 15 points, or 1.3 percent, on Tuesday.
The broader telecoms sector fell 1.3 percent, hit by a bearish note by UBS, which warned about weaker-than-expected revenues this year and further dividend cuts, also due to the high level of debt.
France Telecom, Telecom Italia and TeliaSonera, which were all downgraded to "sell" by UBS, fell between 0.5 percent and 3.5 percent.
Michel Ommeganck, a trader at IG in Paris, said some of his clients sold shares in France Telecom on the back of the UBS downgrade but they generally remained positive about the broader market's outlook.
"A lot of our clients see at least in the short or medium-term a chance to go long and to make some money," Ommeganck said.
He added they were buying dips in some of the recent underperformers, such as banks, betting that further details about the restructuring of the Cypriot financial sector and the formation of a government in Italy will fuel a bounce in the sector, which shed 8.5 percent since late January.
"As soon as this information comes out, the bank will start picking up (and) the shares could go up 10-20 percent within two to six weeks," Ommeganck said.
Showing investors had already started to buy market dips, the Euro STOXX 50 index of euro zone shares had halved its daily losses to trade 0.3 percent lower at 2,673.18 points.
Helping the index cut losses were auto stocks, which rebounded after an 8 percent fall since early March, and defensive sectors such as food & beverages and healthcare shares.
Valerie Gastaldy, head of Paris-based technical analysis firm Day-By-Day, said a rise in the more cyclical banking shares was needed to confirm the market was still in a bullish trend.
If banks' shares rebound from current levels, Gastaldy said the Euro STOXX 50 was likely to bounce back to its recent highs in the 2,740-2,750 area and could then head to 3,080, its 2011 peak, by the end of the year.
Banking shares have the heaviest exposure to the region's public debt and financing conditions and can be a gauge of investor confidence in Europe's ability to tackle its crisis.
EURO ZONE CAUTION
Other investors were more cautious on euro zone shares.
Jonathan Fry, private wealth director at asset management firm Jonathan Fry, was underweight continental European equities and said the Cypriot debt crisis and Italy's election stalemate emphasised the lingering risk in investing in euro zone shares.
"There are many more chapters to go in this European story and that's why we're not increasing our exposure to Europe," Fry said.
He preferred UK shares for their global exposure and he expected them to deliver annual returns of around 5.5 percent over a multi-year period.
Yet Britain's FTSE 100 was among the worst performers on Wednesday, down 0.4 percent, as mining stocks fell on revived concerns about an early end to the U.S. Federal Reserve's quantitative easing programme, which is seen as underpinning global demand for metals.
After recent positive payroll reports, traders were closely watching ADP data on U.S. private-sector hiring at 1215 GMT for clues on Friday's benchmark jobs data, expected to show an improving economy.
"If you get inflation fears relating to ADP numbers, they (the Fed) would reduce QE and that might happen within this year," the head of a German trading desk said.
"The main topic is how long they can control the real interest rate as they are doing, with a very good track record, at the moment. If they can do it, you're in a bull market, not a bear market."