* FTSEurofirst down 1.5 pct, Euro STOXX 50 down 2 pct
* Spain’s Ibex 35 hits fresh 9-yr lows as borrowing costs rise
* French builders hit as housing starts drop
By Francesco Canepa
LONDON, May 30 (Reuters) - European shares fell sharply on Wednesday and looked poised for further jitters amid signs Spain’s economic and banking crisis was deepening and on renewed concerns Greece may fall out of the euro zone.
Spain’s Ibex 35 index fell 2.6 percent to fresh 9-year low as investors worried that soaring borrowing costs may force the country, engaged in an expensive recapitalisation of its banking sector, to seek an international bailout. .
The European Commission offered Madrid more time to reduce its budget deficit and direct aid to recapitalise distressed banks, two measures that had so far been opposed by Europe’s paymaster, Germany.
“Right now we’re in a sort of suspicious vacuum of support coming from Germany, which is making the market slightly nervous,” Arthur van Slooten, a strategist at Societe Generale, said.
Van Slooten said it was “completely understandable” that Germany was reluctant to endorse any further support to peripheral countries before Greek parliamentary elections next month.
These were cause for fresh investor concerns on Wednesday as a new poll showed an anti-bailout party had taken the lead.
“At the moment we’re still putting a lot of emphasis on capital protection, knowing there’s no easy solution out there,” Van Slooten added, tipping U.S. Treasuries and corporate bonds over euro zone equities to shield capital from the debt crisis.
The Euro STOXX 50 index closed 2 percent lower at 2,116.18 points, having traded 76 percent of its 90-day volume average and tracking falls on the euro, which declined to a near two-year low against the dollar.
The euro zone blue chip gauge, which was on track to report its steepest monthly loss since August, was consolidating a bearish trend and lacked any technical support until 2,066, a level last seen in November, charts showed.
“Volumes are drying out while everyone waits for fresh news,” Valerie Gstaldy, head of Paris-based technical analysis firm, Day-By-Day, said.
“The euro is nosediving and stocks are likely to follow through: we are set to see some blood on the walls.”
The pan-European FTSEurofirst 300 closed 1.5 percent lower at 975.74 points, having traded 108 percent of its 90-day volume average.
In a further symptom of the economic crisis gripping the euro zone, French construction and building materials companies Saint-Gobain, Bouygues and Vinci fell between 5 percent and 3.7 percent after data showed a sharp drop in housing starts in France.
Outperforming was Fiat Industrial, up 1 percent in volume nearly twice the average, after the Italian truck maker unveiled plans to merge with its U.S. farm equipment unit CNH .
The proposed merger will be carried out at a swap ratio based on market prices in March and April, resulting in a premium of around 23 percent to Fiat Industrial’s closing price on Monday, according to estimates by Italian brokerage, Banca Akros.