European stocks stage late rally ahead of rate cuts

                                
 * FTSEurofirst 300 ends up 0.6 pct, up for 2nd day in a row
                                
 * Defensive stocks stage late rally; oils, miners cut losses
                                
 * Investors brace for deep BoE, ECB rate cuts on Thursday
                                
 * Chipmaker Infineon plummets 40 pct on bleak outlook
                                
 
                                
 By Blaise Robinson
                                
 PARIS, Dec 3 (Reuters) - European stocks staged a late rally
on Wednesday, ending a roller-coaster session up 0.6 percent,
helped by rallying defensive drugmakers and telecoms as
investors braced for deep interest rate cuts on Thursday.
                                
 Energy and mining shares, hit by renewed worries that the
global economic slump would dent the appetite for commodities,
trimmed heavy losses in late session, but remained in negative
territory, with Rio Tinto <RIO.L> tumbling 9.6 percent, Xstrata
<XTA.L> falling 5 percent and Total <TOTF.PA> dropping 1.5
percent.
                                
 The FTSEurofirst 300 <.FTEU3> index of top European shares
closed 0.6 percent higher at 829.89 points, after sinking more
than 2.5 percent earlier in the session.
Vodafone <VOD.L> rose 4.4 percent, Novartis <NOVN.VX> gained
4.5 percent and AstraZeneca <AZN.L> added 5.4 percent.
                                
 "The market is really looking for a direction. I think we're
building some sort of floor right now. People are digesting the
flow of profit warnings and pricing in a quite apocalyptic
scenario," said Emmanuel Morano, head of equity management at La
Francaise des Placements, in Paris.
                                
 "With the current valuation levels and volatility gauges, it
would be a surprise to see stocks revisiting the historic lows
reached recently. But to rally, stock would need a catalyst, and
this is going to be difficult. On the micro side, CEOs are now
admitting that things are getting really tough, and on the macro
side, things don't look good either."
                                
 Banks ended on the downside, with Credit Suisse <CSGN.VX>
tumbling 8.9 percent on concerns the bank's corporate credits
and commercial mortgage investments could be further affected by
the economic downturn, pushing the bank into another quarterly
loss.
                                
 Traders said investors' focus is now turning to Credit
Suisse after rival UBS <UBSN.VX>, which was badly hit by the
credit crisis earlier on, was bailed out by the Swiss state.
                                
 "For a long time it looked like Credit Suisse was Mr Clean
as far as the credit and finance crisis was concerned. But the
latest market turbulence has shown that both of the major
(Swiss) banks are affected," a trader said, in reference to
rival UBS.
                                
 Infineon <IFXGn.DE> plummeted 40 percent after the German
chipmaker warned that its already bleak prospects for 2009 may
worsen if its memory chip unit Qimonda <QI.N> folds and it fails
to cut more costs.
                                
 Infineon, hit hard by its exposure to the stricken auto
sector as well as to troubled Qimonda, which mainly serves the
computer industry, raised the prospect of tapping shareholders
for further funds as it forecast an operating loss and a
double-digit decline in sales for 2009.
                                
 Adding to the gloom for tech shares, market research firm
IDC said the PC market will slow as the financial turmoil
spreads. It sees worldwide PC shipments growing 3.8 percent in
2009 with shipment value falling by 5.3 percent.
                                
 Around Europe, UK's FTSE 100 index <.FTSE> rose 1.1 percent,
Germany's DAX index <.GDAXI> gained 0.8 percent, and France's
CAC 40 <.FCHI> added 0.4 percent.
                                
 On the macro side, euro zone services activity fell further
than initially thought in November to a record low while
inflationary pressures continued to subside, a key survey
showed.
                                
 "Lower commodity prices and worsening economic conditions
pushed down both input and output prices indices. Under these
conditions, the ECB should continue its monetary policy easing,"
BNP Paribas economists wrote in a note.
                                
 The picture was also grim on the retail side, with the euro
zone retail sales falling much more than expected in October,
underlining weak consumer demand, and adding to arguments for a
deep interest rate cut by the European Central Bank.
                                
 A majority of economists expect the ECB to cut interest
rates by only 50 basis points on Thursday, despite the flurry of
poor economic data and a sharp drop in inflation.
                                
 A Reuters poll taken last week showed 24 of 81 economists
forecast a cut of 75 basis points or more. The majority believed
the ECB will cut rates by only 50 basis points, with more cuts
to come next year.
                                
 The Bank of England, also due to announce a rate decision on
Thursday, is forecast to make a move double this size.
                                
 The FTSEurofirst 300 <.FTEU3> index of top European shares
has lost 45 percent so far this year, with the DJ Stoxx basic
resources index <.SXPP>, home of mining shares, the most hit,
down 66 percent year-to-date.
 (Reporting by Blaise Robinson; Additional reporting by Jason
Rhodes in Zurich; Editing by Hans Peters))