European shares slipped on Wednesday, as investors doubted euro zone governments' ability to stem the region's debt crisis, and the European Central Bank's buying of sovereign bonds had only a limited effect on rising yields.

Equity indexes moved in and out of positive territory several times, taking their cue from the bond markets. Rising bond yields have been a major factor in pushing down equity prices in the last few days.

At 12:45 p.m., the pan-European FTSEurofirst 300 <.FTEU3> index of top European shares was down 0.2 percent at 968.69 points, extending its decline into a third session. Earlier in the session it was up more than 1 percent, as high as 981.24.

The market got a bit ahead of itself on the (ECB) bond buying ... It's hard to work out what's happening, said Sean Power, equity analyst at City Index.

The European Central Bank stepped in to stem an accelerating sell-off of euro zone government bonds on Wednesday, traders said, after the United States called for more decisive action to halt a spreading sovereign debt crisis.

Initially, this had the effect of bringing Italian sovereign bond yields below 7 percent, the level widely regarded as unsustainable. But by late morning, yields were up at 7.17 percent.

Italy's FTSE MIB <.FTMIB> was down 0.1 percent, and has lost more than 24 percent in 2011.

Strategists said political uncertainty as Italy formed a new government would continue to unnerve investors. Prime Minister designate Mario Monti unveiled Italy's new government on Wednesday after an intense two days of consultations aimed at staving off a major financial crisis, but he may still face an early election.

There will be scepticism about his ability to do anything meaningful about bringing down the debt level, said Ian King, head of international equities at Legal & General, which has 356 billion pounds under management.

With all the uncertainties, equities will find it hard to make much progress from here.

FRENCH YIELD SPREAD

France's CAC 40 <.FCHI> put on 0.2 percent, in a slight rebound from the previous session's losses. Banking heavyweights Credit Agricole and Societe Generale rose 0.8 and 0.6 percent.

Investors remain worried that France, the euro zone's second-largest economy, could be dragged into the debt crisis, as some of its banks are heavily exposed to euro zone sovereign debt.

The yield spread of 10-year French government bonds over their German equivalents widened to a euro-era high on Wednesday.

Highlighting the economic concerns, the chief executive of Societe Generale would not rule out a recession in France next year and said the bank would have to cut hundreds of jobs to strengthen its balance sheet, according to a union memo.

This market is not about macro or micro data; it's all about sovereign bond yields. The apostles of the value style (of investing) have been saying for 18 months: 'stocks are cheap'. They look cheap indeed, but the focus is elsewhere, said Bertrand Lamielle, head of asset management at Paris-based B*Capital.

Among individual shares, French power utility EDF fell 4.3 percent on news the Socialist party and the Green party had reached a deal for the presidential election that could lead to the closure of 24 nuclear reactors by 2015.

Spain's IBEX <.IBEX> rose 0.5 percent. The country faces a major test of confidence in a bond auction on Thursday, as well as a general election at the weekend.

(Additional reporting by Dominic Lau; Editing by Will Waterman)