(Reuters) - European stocks fell on Wednesday, with a blue-chip index down for the fifth session in a row, as poor demand at a German government bond sale spurred fears the euro zone debt crisis was spreading to its strongest economy.

Losses, however, were limited as major indexes slipped into 'oversold' territory, signalling a potential short-term rebound, and as investors picked up shares in sectors seen as less sensitive to economic cycles, such as health care and utilities.

Germany's auction was one of the country's worst bond sales since the launch of the euro, with the Bundesbank forced to buy large amounts of the bonds to ensure the auction would not fail.

It's a strong signal on what the market thinks about German debt. People seeking safety are increasingly turning to Swedish and Norwegian bonds instead, said David Thebault, head of quantitative sales trading, at Global Equities.

At 1219 GMT, the FTSEurofirst 300 index of top European shares was down 0.2 percent at 912.37 points, after hitting a seven-week low earlier in the session.

The euro zone's blue chip Euro STOXX 50 index was down 0.2 percent at 2,132.15 points, falling for the fifth consecutive session. The benchmark index has tumbled 15 percent since late October.

After Monday's meltdown, I thought about playing a short-term rebound but the turnaround I had expected before jumping in never came. Best thing to do at this point is to buy a 15-day put spread, Thebault said.

A raft of negative macro data, including HSBC's preliminary China manufacturing survey and euro zone industrial new orders also hit sentiment. Mining shares, sensitive to China's appetite for commodities, were among the biggest losers on Wednesday, with Rio Tinto down 1.4 percent and BHP Billion down 1 percent.

OVERSOLD IN THE SHORT TERM

Banks were mixed, with leading Belgian lender KBC tumbling 6.6 percent while the spread between the Belgian 10-year bond yield and the German bund yield hit a euro-era high as the country's efforts to form a government after 18 months take a fresh stumble.

France's BNP Paribas, which has a 17 billion euro ($23 billion) exposure to Belgian sovereign debt, was down 0.8 percent.

But Commerzbank gained 4.8 percent after its CEO said the bank would meet the capital requirements of the European Banking Authority (EBA) by its own means.

Around Europe, UK's FTSE 100 index was down 0.6 percent, Germany's DAX index up 0.6 percent, and France's CAC 40 down 0.1 percent.

The Euro STOXX 50, the DAX, the CAC 40 and the FTSE 100 slipped into 'oversold' territory, with their nine-day relative strength indexes (RSI) hitting 30 and with wide gaps between the nine-day and 14-day RSIs, signalling a potential rebound in the short term.

We've been falling for five days in a row, so it wouldn't be a surprise to see a rebound in the short term, but the medium-term picture remains negative, TradingSat technical analyst Vincent Ganne says.

The Euro STOXX 50 could rise to as high as 2,220 points, which would become a great level to take short positions. The indexes are poised to revisit the year's lows before the end of the year.

The RSI is a widely-used technical momentum indicator which compares the magnitude of recent rises with recent falls to determine oversold or overbought conditions. Thirty and below is considered oversold while 70 and above is considered overbought.

The gap between the nine-day and the 14 day RSIs is also used to spot exaggeration of a movement in prices, which is usually followed by a reversal.

Despite the negative newsflow surrounding the euro zone debt crisis, there were signs of hope on the corporate front.