European shares fell in early trade on Thursday, tracking Wall Street lower and extending a sell-off from the previous session on concern about Italy's borrowing costs, with an auction later in the session the latest test of investor sentiment.

At 8:19 a.m., the FTSEurofirst 300 <.FTEU3> index of top European shares was down 1.2 percent at 954.99 points, after falling 1.8 percent in the previous session when bond yields in Italy surged as margin calls on Italian paper were raised.

A belief that a successor to Prime Minister Silvio Berlusconi could be announced soon helped Italian stocks recover straight after the open, however, with sold-off banks among the best performers.

The STOXX Europe 600 Banking Index <.SX7P> was down 1.1 percent in early trade, although UniCredit was up 2.7 percent.

(Reporting by Brian Gorman)

(This story corrects the headline to show Italy is holding a bill auction, not a bond auction)