European shares fell by midday on Friday, breaking a tentative five-day recovery and tracking weakness in Asia as credit worries returned to the forefront to take financial stocks lower.
At 1013 GMT, the FTSEurofirst 300 index of top European shares was down 0.3 percent at 1,504.8 points, with banks the biggest negative weight on the index.
The index has lost about 8 percent since hitting a 6-1/2 year peak in mid-July as investors have fretted about the wider impact of banks' exposure to a crisis in subprime mortgages in the United States.
Standard Chartered fell 2.9 percent, leading losers in Europe due to worries over a structured investment vehicle sponsored by the bank and to turmoil in Asia after three top banks revealed bigger-than-expected exposures to subprime mortgages.
StanChart said Whistlejacket Capital, an SIV created by the bank's structured credit investments team, was triple-A rated and its exposure was limited to an investment in the fund of around $250 million.
In Asia, shares in state-run Bank of China, its Hong Kong arm and Singapore's DBS Holdings all fell after they revealed a combined exposure to the U.S. subprime mortgage market of almost $13 billion.
Commerzbank was the top German loser, and French-Belgian bank Dexia the top decliner in Paris, while German insurers Munich Re and Allianz were both down more than 1.3 percent.
Countrywide Financial Corporation, which received a $2 billion injection from Bank of America, spooked markets on Thursday by saying that the U.S. housing downturn would probably lead the United States into recession.
ABN AMRO also said in a note that it expected turmoil in credit markets to weaken the wider U.S. economy.
We expect the seizure in credit markets to gradually ease, but greater volatility, higher risk premiums and tighter lending standards are likely to persist, it said.
This should affect the wider U.S. economy, most notably through lower demand for mortgages. Reduced access to capital might also slow business investment, it said, adding that it expected 25 basis point cuts in the funds rate at the next two meetings of the U.S. Federal Reserve.
Britain's FTSE 100 was flat, while France's CAC 40 was down 0.2 percent and Germany's DAX was down 0.4 percent.
Among gainers, Belgian telecoms operator Belgacom rose 2.5 percent after reporting first-half results above market expectations, making it the top European gainer.
Steelmaker Arcelor Mittal climbed 2.3 percent after traders said Merrill Lynch had upgraded the stock.
Oil prices slipped slightly, but the sector was still the best performer among the DJ Stoxx European sector indexes, with heavyweight BP gaining 0.55 percent, Total up 0.2 percent and Royal Dutch Shell down 0.16 percent.
U.S. stock index futures pointed to a weaker opening on Friday ahead of the release of two sets of economic data expected by analysts to provide more clues to the growth outlook.
Durable goods orders for July are due for release at 1230 GMT, followed by July new home sales at 1400 GMT.
ABN said that in volatile markets, the best approach would be to focus on stock selection.
The market dislocation of recent weeks has driven a flight to quality, and so-called 'safe havens' such as non-cyclicals have outperformed, it said, noting also that names with high dividend yield may provide reassurance.