European shares halted a four-day winning streak Wednesday, albeit in low volume, as worries about capital raising in the banking sector hit investor sentiment after Italian lender UniCredit priced a rights issue at a massive discount.

UniCredit was the biggest blue-chip loser in Europe, down 14.5 percent, after it launched a 7.5 billion euro (6.2 billion pounds) two-for-one rights issue at a discount of 69 percent to its closing share price Tuesday.

The bank has lost more than half of its value over the past year as Italy has become engulfed by the euro zone debt crisis and the bank has made massive writedowns.

We are short UniCredit, there is not enough money to support the banking sector, said Colin McLean, managing director of SVM Asset Management.

The bank trades on an implied five-year earnings per share compound annual growth rate of minus 13.1 percent, according to StarMine data, which means the market is pricing in a drop of that magnitude every year over the five-year period on a compounded basis.

Italian banks are being impacted by Italy's funding problems and I do believe they will need further rights issues. I think eventually some banks will be quasi-nationalised, McLean said.

Italy's FTSE MIB <.FTMIB> was the biggest declining major index, down 2 percent, hit also by worries about the country's own refinancing needs.

Italy kicks off its 2012 issuance program next week and there is concern it may struggle to sell its debt at affordable costs.

Italian yields remain close to 7 percent, a level deemed by many analysts as unsustainable and near where other countries needed a bailout.

Investor minds are focused on a very significant volume of European equity and bond re-financing to be done this year, said Bob Parker, senior adviser at Credit Suisse. Liquidity conditions are not normal and ... we favour very large cap, under-leveraged defensive sectors.

The pan-European FTSEurofirst 300 <.FTEU3> index of top shares closed down 0.6 percent at 1,021.50 points after rising 4.5 percent over the past four days, but volume was only 67.5 percent of its 90-day daily average.

Support for the index was seen at its 23.6 percent Fibonacci Retracement at 987.07 points from its September 2011 to October 2011 rally, while resistance was at 1,028.48, its October 2011 high from the same rally.

(Editing by David Holmes)