* FTSEurofirst 300 down 0.4 percent
* British economy unexpectedly shrank in fourth quarter
* Spanish banks fall after strong run
* Siemens gains as results beat forecasts
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By Brian Gorman
LONDON, Jan 25 (Reuters) - European shares fell on Tuesday, after Britain's economy unexpectedly shrank in the fourth quarter and Spanish banks retreated after a recent strong run. At 1012 GMT, the FTSEurofirst 300 index of top European shares was down 0.4 percent at 1,146.97 points, after rising 1 percent over the previous two sessions.
Britain's economy suffered a shock 0.5 percent contraction in the last three months of 2010 after December's heavy snow took a far harsher toll than economists had forecast, official data showed on Tuesday.
It was "a disappointing set of numbers and should dash any threat of a rise in interest rates in the near future," said Azad Zangana, European Economist at Schroders.
UK banks Lloyds and Royal Bank of Scotland fell 2.9 and 2.3 percent respectively.
Spanish bank shares fall sharply, led by a 5 percent drop in Bankinter, as investors questioned whether new core capital requirements for banks were tough enough to restore confidence in the ailing financial sector.
Among the heavyweights, Banco Santander and BBVA were down 3 and 3.1 percent respectively. Both had risen in recent days after Spain said it planned a partial state takeover of its weakest savings banks as it seeks to reassure investors a rescue will not weigh on its deficit.
Spain's banks will not need more than 20 billion euros ($27.31 billion) in fresh capital, Economy Minister Elena Salgado said on Monday.
"Everybody knows Spain has problems - the 20 billion number does not sound enough. If we get another number, that is credible, people will say it is a relief," said Isherwood.
The effective size of Europe's financial rescue fund should be increased and its banks need rigorous stress-testing to help restore market confidence, the IMF said in a report released on Tuesday.
Across Europe, Britain's FTSE 100 fell 0.6 percent, Germany's DAX fell 0.1 percent and France's CAC40 fell 0.3 percent.
But strategists remained upbeat on the prospects for equities.
"I would not put too much emphasis on it (UK GDP)," said Philip Isherwood , European equities strategist at Evolution Securities. "The hope would be that earnings will drive the market more than the wider macro stuff."
SIEMENS RISES
Some companies bucked the trend, supported by strong results. Siemens AG, Europe's biggest engineering conglomerate, rose 1.4 percent after posting better-than-expected earnings in its first quarter, helped by robust demand from rapidly growing emerging economies.
Ericsson, the world's biggest mobile network gear maker, rose 3.4 percent after seeing a surge in equipment sales in the fourth quarter, although the Swedish group's profit margin was weaker than expected.
Shares in chipmaker STMicroelectronics fell 3.9 percent after fourth-quarter results beat expectations, but a disappointing performance of its joint venture with Ericsson weighed on the stock.
(Editing by Erica Billingham)