Europe shares slip; recession fears centre stage

* FTSEurofirst 300 falls 2.8 pct after two-day rally

* Banks slip, recession fears back in spotlight

* Commodity stocks track weaker metals, oil prices

By Atul Prakash

LONDON, Oct 15 (Reuters) - European shares headed lower on Wednesday to break a two-day winning streak as the euphoria over bold government action to arrest a financial sector meltdown dissipated and recession fears took centre stage.

At 0855 GMT, the FTSEurofirst 300 index of top European companies was down 2.8 percent at 939.10 points, after gaining a record 10 percent on Monday and 3 percent on Tuesday.

On Wednesday, banks were the top weighted sectoral losers, with Standard Chartered falling 6.6 percent, Societe Generale shedding 3 percent, HSBC down 3.2 percent and UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) down 4 percent.

KBC (KBC.BR: Quote, Profile, Research, Stock Buzz) fell 13.7 percent. The Belgian banking and insurance group said it expected a third-quarter loss of up to 930 million euros ($1.3 billion) after Moody's cut the credit ratings on a number of structured investment products that KBC had invested in.

Recession fears returned after trillions of dollars pledged for bank bailouts from Europe to Asia helped allay fears of an imminent financial meltdown.

"After the colossal gains achieved at the start of this week, it would seem that the hangover has kicked in and investors have sobered to the reality that recession is here," said Andrew Turnbull, senior sales manager at ODL Securities.

EU leaders meet in Brussels just days after stumping up 2.2 trillion euros ($3 trillion) to rescue European banks and jolt frozen money markets -- at the heart of worst financial crisis since the Great Depression -- into life.

European leaders will press for an overhaul of the world's financial structures after Asia joined western bastions of capitalism in bailing out banks to avert a financial meltdown.

Southeast Asian nations backed by Japan, South Korea, China and the World Bank were the latest to join the global rescue effort, agreeing on Wednesday to create a multi-billion fund to buy bad debt and help banks. [ID:nSP387433]

The United States on Tuesday offered to take $250 billion worth of stakes in nine top banks.

But concerns remained that the rescue would come at a huge economic cost and do little to repair the damage already done by a 14-month credit crunch, which has slowed the economy.

COMMODITIES STOCKS SLIP

Commodity shares also fell, tracking losses in metals and crude oil prices.

Oil fell 1.3 percent to trade below $78 a barrel, a far cry from all-time highs of around $147 hit earlier this year. BP (BP.L: Quote, Profile, Research, Stock Buzz), Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz), gas producer BG Group (BG.L: Quote, Profile, Research, Stock Buzz) and Tullow Oil (TLW.L: Quote, Profile, Research, Stock Buzz) shed between 0.1 and 5.9 percent.

Weaker metals prices dragged down mining shares, with BHP Billiton (BLT.L: Quote, Profile, Research, Stock Buzz), Anglo American (AAL.L: Quote, Profile, Research, Stock Buzz), Lonmin (LMI.L: Quote, Profile, Research, Stock Buzz), Kazakhmys (KAZ.L: Quote, Profile, Research, Stock Buzz), Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz) and Antofagasta (ANTO.L: Quote, Profile, Research, Stock Buzz) falling between 2.6 and 13 percent.

Global miner Rio Tinto fell 9.2 percent. It warned of slowing Chinese demand for commodities because of the world financial crisis and signalled a possible delay in plans to sell $10 billion in assets.

Indian mining company Sterlite Industries, a unit of Vedanta Resources, said it will not be able to close a $2.6 billion deal to buy U.S. copper miner Asarco out of bankruptcy, due to troubles in the credit markets, an Asarco attorney said.

Vedanta shares were down 11 percent.

Britain's FTSE .FTSE was down 2.7 percent, Germany's DAX .GDAXI fell 2 percent and France's CAC .FCHI slipped 2.2 percent.

The FTSEurofirst 300 index plummeted 22 percent last week -- its worst weekly performance ever, and is down nearly 37 percent so far this year. (Reporting by Atul Prakash; Editing by Paul Bolding)