* FTSEurofirst 300 up 1.6 pct, extending winning run
* Index up 35 percent since reaching a floor on March 9
* Europe's banking index up 114 pct since early March
* For up-to-the-minute market news, click on []
By Blaise Robinson
PARIS, May 19 (Reuters) - European stocks rose by mid
morning on Tuesday, gaining ground for the fourth straight
session, propelled by surging banking stocks such as Deutsche
Bank <DBKGn.DE>, while investors braced for U.S. housing data.
Better-than-expected data from Germany's ZEW survey also
helped boost sentiment. The ZEW economic sentiment index rose to
31.1 in May from 13.0 in April.
Shares in Bank of Ireland <BKIR.I> leapt 27 percent after
the lender said it would buy back debt in a boost for its
capital position.
Heavyweight mining shares were also on the rise, enjoying
sharp gains in metal prices. Anglo American <AAL.L> gained 6.2
percent and Xstrata <XTA.L> rose 6.6 percent.
At 0840 GMT, the FTSEurofirst 300 <> index of top
European shares was up 1.6 percent at 873.67 points.
The index has surged 35 percent since reaching a lifetime
low in early March, as fears over a global economic depression
receded, but is still down 47 percent from a multi-year high
touched in mid-2007.
Arthur van Slooten, European equity strategist at Societe
Generale, said investors were keen on adding more risk into
portfolios, reassured by signs of improvement in the credit
market.
"This rally has been a correction of the equity risk
premium, and obviously not based on an improvement on the
earnings side," he said.
Banks gained ground again, with HSBC <HSBA.L> up 3.8
percent, BNP Paribas <BNPP.PA> up 5.3 percent and Deutsche Bank
<DBKGn.DE> up 6.6 percent. The DJ STOXX banking index, which was
up 3.7 percent on Tuesday, has shot up 114 percent since early
March.
UK lenders were particularly in focus after a source said UK
Financial Investments (UKFI), which manages Britain's stakes in
Royal Bank of Scotland <RBS.L> and Lloyds Banking Group
<LLOY.L>, had been sounding out investors who may be interested
in buying some of its holdings.
According to the source, Britain has held talks with
investors to gauge their interest in buying its stakes in the
part-nationalised lenders, and could begin selling its holdings
within a year. []
Royal Bank of Scotland rose 5.6 percent and Lloyds added 4.5
percent.
BACK TO NORMAL?
Analysts are pointing out that an improvement in the credit
market over the past few weeks has been helping the recovery in
equity prices.
European credit spreads, reflected in indexes such as the
investment-grade Markit iTraxx Europe index <ITEEU5Y=GF> as well
as the Markit iTraxx Crossover index <ITEXO5Y=GF>, have sharply
tightened since March.
"The Libor (London interbank offered rate) has come down a
lot, and that is excellent news. It means the credit crisis is
being overcome. In that respect, the equity rally we have seen
since March was justified," said van Slooten.
A Reuters poll showed on Monday that more than half of euro
zone money market dealers think the worst of a liquidity crisis
dating back to 2007 is over, although some large banks still
think it has further to run. []
Around Europe, the UK's FTSE 100 index <> was up 1.1
percent, Germany's DAX index <> was up 2 percent and
France's CAC 40 <> was up 1 percent.
Bucking the trend, British retailer Marks & Spencer Group
Plc <MKS.L> dropped 7.7 percent after it posted an expected 40
percent slide in full-year profit and cut its final dividend by
a third to conserve cash, just 12 months after increasing it.
Other consumer-related stocks were on the downside. Tesco
<TSCO.L> was down 1.1 percent and Unilever <UNc.AS> was down 2.2
percent.
On the macro front, investors were bracing for key U.S.
housing starts and build permits, due at 1230 GMT, looking for
insight on the health of the battered housing sector.
(Reporting by Blaise Robinson; Editing by Jon Loades-Carter)
