European shares fell on Wednesday and were set for their biggest one-day drop in a month, as banking sector worries overshadowed initial euphoria from solid earnings by tech giants Microsoft and Alphabet.

The pan-European STOXX 600 index fell 0.7%, as regional banking stocks dropped 1.2%.

Banking sector concerns revived after shares in U.S. lender First Republic Bank slid to a record low on Tuesday, closing down nearly 50%, as it disclosed a more-than-

$100 billion

plunge in deposits in the last quarter.

"The problems at First Republic Bank have undoubtedly reopened the sores from March, as investors fret about the financial system again," said Russ Mould, investment director at AJ Bell.

"While big U.S. banks largely impressed at the start of this earnings season, numbers from regional lenders across the pond look set to be under heavy scrutiny in the coming days and weeks."

Boosting telecom shares, Telia Company AB rose 5.6% after the Swedish telecom operator posted better-than-expected EBITDA in the first quarter and agreed to sell its Danish operations.

Earnings from Microsoft Corp and Google's parent Alphabet Inc beat expectations, but recessionary worries in the world's largest economy kept investor sentiment fragile.

Shares of Swiss banking software company Temenos AG jumped 10.2% after it reported first-quarter earnings above consensus.

The biggest gainer on the index, Kindred Group Plc was up 14.3% after the company initiated a review of strategic alternatives, including a merger or sale of the company.

Meanwhile, ASM International NV fell 10.0% after the Dutch semiconductor equipment maker reported a drop in first-quarter orders, citing softening market conditions, despite an estimate-beating revenue.

Dassault Systemes SE slid 7.4% after the French software maker reported first-quarter numbers broadly in line with estimates but with a miss on software licenses.

Teleperformance SE dropped 12.6% after the French outsourcing and call centre group said it intends to buy rival Majorel Group Luxembourg SA for 3 billion euros ($3.3 billion).

Investors will closely monitor commentary from a host of ECB policymakers due to speak later in the day for more clues on the central bank's monetary tightening path.

A Reuters poll of economists suggested that ECB will almost certainly add 25 basis points to its deposit rate on May 4 and then take it to 3.50% or higher in June as core inflation remains persistently high

 

(Reporting by Shubham Batra in Bengaluru; Editing by Sherry Jacob-Phillips and Sonia Cheema)