In late morning trading, London's FTSE 100 index of leading shares was down 1.30 per cent at 4,578.46 points.

Frankfurt's DAX 30 slid 0.87 per cent to 4,982.38 points and in Paris the CAC 40 dipped 0.25 per cent to 3,387.89 points.

The DJ Euro Stoxx 50 index of leading eurozone shares retreated by 0.62 per cent to 2,562.39 points.

The European single currency stood at 1.3611 dollars.

'The recent move higher by equity markets looks set to take a pause,' said CMC Markets dealer Jimmy Yates in London.

'The overall mood remains positive so there's no reason to believe - at least for the time being - that the dip lower will necessarily be anything more than temporary.'

Despite losses on Wednesday, Frankfurt and London have gained more than three percent in value since the start of 2009, while Paris has chalked up gains of more than five per cent.

The London market was meanwhile hit on Wednesday as a leading British retailer, Marks & Spencer, said it would axe 1,230 jobs in the latest sign of an intensifying economic downturn.

M&S added it would shut 27 mainly food stores as the group struggled with falling sales and a looming recession in Britain.

The news, contained in a Christmas trading update, added fresh gloom to the country's retail sector as a sharp economic downturn starts to bite, and comes one day after the shutdown of general retailer Woolworths.

Like-for-like sales - stripping out the effect of new floor space - dived by 7.1 per cent in 13 weeks to Dec 27, 2008, compared with the same period of the previous financial year, M&S said.

In early morning trading, however, M&S shares gained 6.49 per cent to 254.25 pence as investors welcomed the cost-cutting drive.

In Asia on Wednesday, Japanese stocks extended a winning streak to seven days, closing at a two-month high thanks to a weaker yen and optimism about United States spending plans to boost the economy.

Tokyo's benchmark Nikkei-225 index climbed 158.40 points, or 1.74 per cent, to 9,239.24, the highest close since Nov 5.

Wall Street rose modestly overnight on Tuesday, lifted by gains overseas and as sentiment was buoyed by hopes that emergency government measures will pull the global economy out of recession.

The US recession is likely to drag on well into 2009 with a 'moderate recovery' in 2010, according to minutes released late Tuesday by the Federal Reserve from December's deliberations ahead of a historic US rate cut.

The minutes from a Dec 15-16 Federal Open Market Committee (FOMC) meeting at which policymakers unanimously cut rates to near zero showed policymakers were faced with a grim economic forecast from its staff.

The report showed economic activity 'appeared likely to decline substantially in the fourth quarter of 2008.'

'The staff revised down sharply its outlook for economic activity in 2009 but continued to project a moderate recovery in 2010,' the minutes stated.

The data showed a US economy suffering on multiple fronts: weak labor conditions, declining consumer and business spending, declining stock market wealth and tight credit.

The housing market, where the economic crisis began, 'was expected to contract further,' the report stated. -- AFP