* FTSEurofirst 300 index down 0.5 percent
* Banks slip after Portuguese downgrade
* Sonova drops after its cuts outlook
* For up-to-the minute market news, click on [STXNEWS/EU]
By Joanne Frearson
LONDON, March 16 (Reuters) - European shares retreated on Wednesday, with banks leading the falls after Moody’s downgraded Portuguese debt overnight and as uncertainty persisted over whether Japan can contain its nuclear disaster.
By 1016 GMT, the pan-European FTSEurofirst 300 .FTEU3 index of top shares was down 0.5 percent at 1,079.25 points after ending at a 3-1/2 month closing low on Tuesday on Japanese nuclear concerns.
The index hovered near its 200-day moving average, having breached it in the previous session, which is a sell-signal for equities.
Volume was at 41.4 percent of its 90-day average.
Banks were the worst performers after Moody’s downgraded Portugal’s sovereign debt rating by two notches to A3, raising concern about the health of the peripheral eurozone countries.
Some fund managers said there were still bargains to be had.
“Yesterday investors were taking risk off the table, now it is time to look at fundamentals and how badly they will be impacted by the events,” Andy Lynch, who managers 2.5 billion euros ($3.50 billion) for Schroders said.
“We have added to the Germany chip equipment maker Aixtron (AIXGn.DE) as it has been heavily sold-off and LED manufacturing is unlikely to be impacted.”
The STOXX Europe 600 Technology .SX8P index turned 0.3 percent lower, having earlier being among the best performers.
Aixtron was up 1 percent, while Software AG SOWG.DE was 3.4 percent higher after UBS upgraded it to “buy” from “hold”.
Elsewhere, the utility sector edged higher, with the STOXX Europe 600 Utilities .SX6P gaining 0.3 percent.
Swiss hearing aid maker Sonova SOON.VX dropped 15.3 percent after it cuts its year outlook for the year.
Despite the rally the prevailing sentiment of the market was weak and concerns persisted in the Middle East, with Bahraini security forces cracking down on protesters.
“Other fear in the market is not only the reactor in Japan but also the events that you saw in Bahrain this morning. The threat of contamination in Japan is still hurting investor confidence,” a London equity trader says.
“It’s a much faster market than we saw last month and I still think that as long as we get clarifications from the Japanese that the reactors are contained, you will see an equal flow of money back out of fixed income and back into equities again.”
Across Europe, the FTSE 100 .FTSE index was down 0.7 percent, Germany's DAX .GDAXI was down 0.3 and France's CAC 40 .FCHI was down 0.8 percent. (Reporting by Joanne Frearson; Editing by Louise Heavens) ($1=.7152 Euro)