* FTSEurofirst 300 drops 0.7 percent
* Banks top sector faller hit by ECB asset quality review
* Heineken and Fortum fall after results
* EuroSTOXX 50 had been heavily overbought
By Alistair Smout
LONDON, Oct 23 (Reuters) - European shares fell in earlytrade on Wednesday, after falls in banks following an assetquality review and disappointing earnings reports from the likesof Heineken took the steam out of a nine day rally.
The pan-European FTSEurofirst 300 fell 0.7 percentto 1,279.28 by 0759 GMT, retreating from a five year high, withall sectors in negative territory, even those usually resilientin falling markets.
Banks dropped 1.5 percent, hit after the EuropeanCentral Bank's asset quality review demanded that banks boosttheir capitalisation, with traders also citing a media reportthat Chinese banks have tripled debt write-offs in the firsthalf of this year fuelling the sell-off.
"The coverage of the assets being reviewed is quite broad...The 8 percent headline benchmark is higher than some hadexpected and may pose a challenge to smaller banks, particularlyin the periphery," Michael Symonds, credit analyst at DaiwaCapital Markets, said.
Within the euro zone bank index, peripheral banksfrom Italy and Spain led fallers.
The top individual fallers were earnings driven. BrewerHeineken fell 4 percent after it reduced its full-yearprofit guidance due to a drop in sales in certain regions,leading the food and bevearge sector to a 0.3 percentdrop.
The biggest loser on the FTSEurofirst 300 was Finnishutility Fortum, down as much as 6.9 percent after itreported a weaker-than-expected underlying third quarter profit,leading utilities to a 0.7 percent drop.
Utilities and food & bevearges are usually seen as"defensive" sectors which are favoured in times of uncertainty.
STMicroelectronics, British American Tobacco and Iberdrola all fell after results.
"Focus is definitely back on these earnings reports... andas equities don't like to head in the same direction for toolong without some sort of pause, so it's no real surprise thatthere's a bit of nervousness at these levels," Alastair McCaig,analyst at IG, said.
McCaig added that with political concerns in the UnitedStates alleviated for the near term, we could push on higheragain before year end.
"We've hit the snooze button on the U.S. debt ceiling alarm,and as it's going to be December when we're look at the budgetand February before we focus on the debt ceiling again, so theoverhanging negative pressure on equities has been lifted."
Stocks rallied strongly on the U.S. debt deal, and theFTSEurofirst gained for 9 straight sessions.
The euro zone Euro STOXX 50 index fell 0.9percent to 3,018.05 points. At Tuesday's close it was at itsmost "overbought" since 2006, when its 14-day Relative StrengthIndex, a measure of buying momentum, hit 73 points.
A reading above 70 indicates "overbought" conditions. TheEuro STOXX 50 has fallen each time its RSI came close to 73 overthe past seven years. Germany's Dax was also in "overbought"territory by the same indicator.
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