* FTSEUROFIRST down 1.3 percent
* Risk off as austerity protesters take to
* Carrefour dips on concerns over Spanish exposure
* Earnings risks knock Sodexo as Barclays downgrades
By David Brett
LONDON, Sept 26 (Reuters) - European shares were lower at midday on Wednesday, with Spanish stocks waning after its economy continued to shrink at a significant rate, while protesters against austerity took to the streets in southern Europe.
The FTSEurofirst 300 had 14.5 shed points, or 1.3 percent, to 1,105.29 by 1035 GMT with sentiment soured by a weak U.S. close overnight as positivity around recent central bank stimulus continued to fade in the face of concern about growth and earnings.
"Markets have realised that, despite reducing a large number of tail risks, the ECB's (bond-buying) programme is not the solution to all the problems in the euro area," Investec analyst Philip Shaw said.
"When those issues start to get greater prominence that is then we start to get a sell-off in risk assets."
Spain's IBEX was the worst-performing European index, down 3 percent after the country's central bank said GDP fell again in the third quarter and as investors braced themselves for the 2013 budget on Thursday.
High beta plays -- stocks that are best to own in a strong bull market and worst to own in a bear market -- such as banks and miners were the biggest fallers.
While the weak GDP data helped push Spain's debt yield higher, Prime Minister Mariano Rajoy said he was ready to seek a new rescue package for his troubled country but only if its debt financing costs remained too high for too long.
Traders said that by pushing bond yields higher markets were putting pressure on the government to take steps to meet conditions for an international rescue, which could pave the way for monetary support from the European Central Bank.
There was unrest on the streets of Athens in Greece and Madrid in Spain in opposition to proposed austerity, causing more concern for the outlook for corporate earnings.
Shares in French supermarket chain Carrefour fell 4.5 percent after the anti-austerity protests in Spain rekindled worries over its exposure to the debt-stricken country, which represented 9.8 percent of second-quarter group sales.
"Carrefour has a strong exposure to Spain, and the stock reacts to worries about the country's debt and demonstrations," a Paris-based analyst said.
The stock was also dragged by Morgan Stanley's downgrade of rival Casino Guichard Perrachon, to "equal-weight" from "overweight". Casino fell 3.6 percent.
Earnings risks saw French catering-to-vouchers group Sodexo fall 3.7 percent as Barclays cut its rating to "underweight" from "equal-weight", saying full-year results on Nov. 8 will be the trigger for consensus earnings revisions.
Concerns that Apple was struggling to keep up with demand for its new iPhone saw ARM, whose chip designs are used in the U.S. firm's smartphones, shed 3 percent.
The low-volume rally over the summer, a result of the cautious sentiment among investors, contributed to downbeat updates from the London Stock Exchange and broker ICAP .
LSE shed 1.3 percent, while ICAP fell 4.1 percent
"We need a fresh positive catalyst for markets to avoid a steady retreat over the next few weeks," Jim Reid, strategist at Deutsche Bank, said in a note.
"With the central bank liquidity guns loaded any short-term set back is unlikely to be severe but until Spain requests aid it is hard to see risk assets making much progress," he said.
Charles Morris, manager of the HSBC Absolute Return fund, remained sanguine about the prospects for European stocks.
"If you are buying into the Eurostoxx 50 you are not buying into European government, you are buying into big multinational companies, which the market forgets when macro concerns come to the fore," he said
He expected the Eurostoxx 50 to struggle to breakthrough march highs around 2,600 level before eventually heading towards 3,000, at which point he will likely lighten his position as the value trade will have all but gone.