European shares were set to fall sharply on Friday after closing at their lowest in six weeks in the previous session, with concerns mounting that borrowing costs in some euro zone countries could rise beyond sustainable levels and further deepen the debt crisis.

Spain saw on Thursday its borrowing costs rising to their highest since it joined the euro. Although ten-year Spanish bond yields slightly fell from highs by late trade and Italian yields eased as the European Central Bank intervened and Italy's new prime minister pledged additional economic reforms, investors remained jittery.

Many consider these (Spanish bond yield) levels unsustainable after the demise of the likes of Greece and Portugal when their yields hit similar levels, said Stan Shamu, strategist at IG Markets.

Spain will be heading to the polls this weekend after a shocker of a week in the bond market. Recent leadership changes in Italy and Greece have failed to drive the market to a sustainable recovery, suggesting it will take much more than a leadership change to appease investors.

Italy's new technocrat prime minister, Mario Monti, unveiled sweeping reforms and said Italians were confronting a serious emergency, but analysts said equity investors were expected to take some money off the table before going into the weekend break.

In a sign global funding strains may spread to Asia, benchmark three-month euroyen interest rates futures fell to an eight-month low on concerns that tightness in dollar money markets may prompt non-Japanese banks to raise yen at a higher rate.

Financial spreadbetters predicted Britain's FTSE 100 <.FTSE> to open 63 to 68 points lower, or as much as 1.3 percent, Germany's DAX <.GDAXI> to fall 72 to 74 points, or as much as 1.3 percent, and France's CAC-40 <.FCHI> to open 36 to 37 points weaker, or about 1.2 percent.

On Thursday, the FTSEurofirst 300 <.FTEU3> index of top European shares ended 1.3 percent down at 957.85, the lowest close since early October. It is down 15 percent in 2011, mainly on worries the euro zone debt crisis could derail a fragile global economic recovery and affect profitability of companies.

Banks <.SX7P>, which have slumped 36 percent this year on their exposure to debt-laden European countries and taken a hit on their balance sheets, were expected to feel the pressure again on Friday after falling 2.2 percent in the previous session. The sector index is down 11 percent so far this month.

COMPANY NEWS

DEUTSCHE BOERSE

Deutsche Boerse and NYSE Euronext have proposed to sell equity-option businesses across Europe and to give rivals access to a major derivatives clearinghouse, in an effort to win support for their merger from antitrust regulators, sources told Reuters.

INSURERS

Insured losses arising from the Thai floods could be in double-digit billions, a senior official from global insurer Allianz said, in a disaster that will lead to a re-assessment of weather risks to the industry in Asia and to global supply chains.

UBS

Swiss bank UBS will slash risky assets in its scandal-hit investment bank by almost half and shift focus back to the business of managing the wealth of the world's rich as it pledged its first dividend since the financial crisis. For more, click on

DEUTSCHE TELEKOM

Deutsche Telekom's head of technology and innovation will leave the company by the end of the year, a source familiar with the matter told Reuters on Thursday.

FRANCE TELECOM

Consolidation of the Portuguese telecoms market may happen faster than expected if the state-owned bank decides to sell its holdings as part of a countrywide push to raise cash, a France Telecom executive said.

ATOS , CAPGEMINI

Top European IT services providers Atos and Capgemini said they were optimistic on outlook with customers continuing to invest despite macroeconomic worries in many European markets.

ALCATEL-LUCENT

The Franco-American telecom equipment maker has more than enough cash to run its operations, its chief financial officer reassured.

CARREFOUR

Pascal Duhamel, the head of Carrefour's property unit, has left the retailer for a job at the Abu Dhabi Investment fund, confirmed a company spokesman. His departure comes as Carrefour's CEO is under pressure from its major shareholders to turn around the group.

(Reporting by Atul Prakash)