* European shares, dollar reverse course
* Investors mull impact of a December "liftoff"
* U.S. GDP softer than expected (Recasts, updates with European midday)
By Jamie McGeever
LONDON, Oct 29 (Reuters) - European shares and the U.S. dollar fell on Thursday, reversing earlier gains, as investors weighed up the negative implications that a U.S. interest rate rise before the end of the year would have on the global economy and markets.
The Federal Reserve, which kept its rates on hold as expected on Wednesday, took the unusual step of strengthening its language about timing in its statement, putting a December rate hike back on the table.
In another hawkish tilt, the Fed also removed a previous warning about slowing global growth, going against earlier speculation that China's cooling economy could delay a rate hike in the United States.
The first estimate of third quarter U.S. growth, released on Thursday, showed the world's biggest economy expanded at a 1.5 percent annualised pace, sharply down from the previous quarter and below the expected 1.6 percent.
But economists expect growth to pick up in the fourth quarter, given strong domestic fundamentals.
"We may see more near-term volatility as the market prices in the Fed's potential rate increase," said Ken Taubes, head of U.S. investments at Pioneer Investments.
At midday in Europe the pan-European FTSEurofirst 300 index .FTEU3 was down 0.5 percent at 1,477 points. Earlier in Asia, Japan's Nikkei share average .N225 gained 0.2 percent to close at 18,935.71.
U.S. futures pointed to a fall of around 0.5 percent at the open on Wall Street. On Wednesday, U.S. stocks ended a volatile session with solid gains, underpinned by the Fed's relatively upbeat stance despite recent worries about global growth due to a slowdown in China.
U.S. Treasury yields and the dollar initially rose after the Fed explicitly referred in its statement at the end of its two-day policy meeting to conditions necessary "to raise the target range at its next meeting". Reference to a particular meeting is rare for the Fed.
The benchmark 10-year Treasury yield was still up 2 basis points at 2.11 percent US10YT=RR .
SUNSHINE FED
Many investors are still not convinced about a lift-off given a recent run of soft U.S. data, making economic releases in coming weeks more crucial in determining a December move.
Economists also expect a key U.S. manufacturing index due on Monday to show the first contraction in the sector in 2-1/2 years, which would not be conducive for a rate hike.
The dollar gave back its earlier gains, with the euro trading higher on the day at $1.0950 EUR= , having skidded to a 2-1/2 month low of $1.0826 overnight.
The Fed's stance is in contrast to the European Central Bank and other major central banks, a factor that is expected to underpin the dollar. The Fed and ECB hold policy decisions within two weeks of each other in December.
The ECB last week signalled its readiness to inject more stimulus to boost prices and the People's Bank of China followed with its sixth interest rate cut in less than a year.
"If markets don't tighten financial conditions for them, if the U.S. data remain firm, if global events don't scare them and if the sun shines every day, the Fed will raise rates at their December meeting," Societe Generale (PA:SOGN) currency analysts wrote in a note on Thursday.
Crude oil futures fell, although they retained most of their gains after soaring more than 6 percent overnight as the U.S. government reported an inventory build-up, which triggered a short-covering rally after three days of losses.
U.S. crude CLc1 fell 1 percent to $45.56 a barrel. Brent LCOc1 slipped 1.3 percent to $48.40.
Spot gold XAU= ticked up to $1,157 an ounce, after skidding more than 1 percent in the previous session in the wake of the Fed's hawkish message.