* FTSEurofirst 300 down 0.4 pct, Euro STOXX 50 down 1.2 pct
* Euro zone banks shed 2.9 pct as Spain hesitates over bailout
* Auto stocks fall 2.3 pct after weak sales data
By Francesco Canepa
LONDON, Sept 18 (Reuters) - European shares fell on Tuesday as Spain’s reluctance to seek a sovereign bailout kept the country’s implied borrowing costs high and prompted investors to continue booking profits on a stellar two-month run for euro zone banks.
Spain has yet to put in a request for international help, which it needs to do before the European Central Bank could start buying its bonds, and said on Tuesday it was still considering the potential terms.
That continued to give some investors an excuse to take profits on the banking sector, which has risen nearly 50 percent since late July, when ECB President Mario Draghi pledged to defend the euro. On Tuesday it shed 2.9 percent.
“ECB’s (intervention) is subject to Spain asking ... for a bailout; until then there will be volatility,” said Manish Singh, head of investment services at Crossbridge Capital.
“I will buy the dips to add to positions. I think Spain will have to accept their fate and bite the bailout bullet.”
Spain’s hesitation cast a shadow over Italy, which is also seen as a possible bailout candidate. Milan’s main shares index, the FTSE MIB, fell 2.4 percent, dragged down by lenders Intesa Sanpaolo and UniCredit.
Fiat, down 4.3 percent, also weighed on the FTSE MIB and led a 2.3 percent selloff among auto shares after data showed car sales fell 8.5 percent in Europe last month as the relentless crisis undermined consumer demand.
The pan-European FTSEurofirst 300 provisionally closed 0.4 percent lower at 1,111.74, further retreating from 14-month highs hit on Friday.
The ECB’s announcement it was willing to buy the bonds of struggling euro zone states lifted German analyst and investor morale in September, the closely watched ZEW survey showed on Tuesday.
Global investors have also turned more bullish on euro zone equities since the ECB’s move, Bank of America-Merrill Lynch’s asset allocation survey showed, with a net 1 percent investors now “overweight” the region.
The Euro STOXX 50, which fell 1.2 percent on Tuesday, is still up 18 percent since Draghi’s pledge in late July fuelled speculation about an ECB intervention.
“Given policy support, positioning and valuation there’s ample scope that the rally can extend ... but we would be unsurprised to see a period of consolidation in the near term,” John Bilton, European investment strategist at Bank of America Merrill Lynch, said.
“Overall it’s our sense that European investors are starting to shift from a ‘sell the rally’ mentality towards a ‘buy the dips’ mentality.”