* FTSEurofirst down 0.9 percent
* Risk assets fall ahead of EU meeting
* Greek, Spanish banks stability in focus
* Burberry falls after missing profit forecasts
By David Brett
LONDON, May 23 (Reuters) - Europe’s top shares fell early on Wednesday, reversing a two-session rally and tracking losses overnight on Wall Street as caution prevailed ahead of an EU meeting, which is expected to discuss ways to shore up Europe’s economy.
At 0749 GMT, The FTSEurofirst 300 index of top European shares was down 8.59 points, or 0.9 percent at 985.08, having gained 2.5 percent in the last two trading days, while the euro zone’s blue chip Euro STOXX 50 index shed 26.85 points, or 1.2 percent, to 2,166.00.
Investors awaited a meeting of European leaders where amongst other things it is expected the idea of regional bonds jointly underwritten by all euro zone member states will be discussed. New French President Francois Hollande supports the proposal but German Chancellor Angela Merkel is opposed to it.
“Most are expecting no concrete solution out of the meeting, just a few ideas discussed on how to boost growth with no real commitment to carry them out; while Angela Merkel is almost certain to reject any proposal by Francois Hollande in relation to euro bonds,” Craig Erlam, market analyst at Alpari, said.
Basic resource stocks, the previous session’s top gainers, were the sharpest fallers on Wednesday as investors switched into risk-off mode, while banks, heavily exposed to the fortunes of the euro zone, also posted early losses.
Fears that Greece may have to leave the euro grew after Dow Jones quoted former Prime Minister Lucas Papademos as saying Greece had no choice but to stick with a painful austerity programme or face a damaging exit from the euro zone.
With newsflow from the euro zone guiding the markets, Greek banks will be in focus again as they need urgent funds to stabilise the sector, while in Spain the government is expected to announce its plan to restructure the recently nationalised Bankia.
Adding to investors’ concerns, Dutch politician Geert Wilders, who aims to turn a Sept. 12 election into a referendum on the euro and EU membership, filed a lawsuit on Tuesday aimed at postponing the Dutch parliament’s ratification of Europe’s permanent bailout fund until after the vote.
The recent resurfacing of the euro zone crisis is already taking its toll on earnings momentum, with companies in the European periphery suffering steeper cuts to consensus expectations than their peers in the region’s core, Deutsche Bank data showed.
Wall Street Computer major Dell Inc forecast disappointing second-quarter revenue as U.S. and European corporate tech spending weakens.
British luxury brand Burberry shed 5.2 percent, the top European blue chip faller, after the firm posted an underlying pretax profit of 376 million pounds, narrowly missing analysts’ average forecast.
Luxury goods shares have wobbled in recent months over worries that Europe’s long-running debt crisis could help trigger an economic slowdown in emerging markets such as China.
On the upside, Carrefour bounced 5.6 percent as Credit Suisse double-upgraded Europe’s largest retailer to “outperform” from “underperform” and lifted its target price by 25 percent to 17.50 euros, citing the arrival of new chief executive Georges Plassat as the catalyst.
“We don’t yet know the precise detail of any plans but, given his strong retail background/experience, we hope and expect him to push through and, importantly, sustain long-overdue radical change,” Credit Suisse said in a note.
Defensive shares such as German drugmaker Merck KGaA and British utility National Grid were among the few gainers as investors’ risk appetite faded.
UBS said in an equity strategy note that investors have been net buyers of defensives over the last nine weeks, and last week saw the second-biggest net buying of defensives in nine months, showing just how cautious market sentiment is in the light of the gloomy macro economic environment.