European shares add to rally; ECB briefing awaited

                                
 * FTSEurofirst 300 rises 0.7 percent, up for third day
                                
 * Banking stocks rally as stress test details emerge
                                
 * ECB, BoE keep rates on hold; focus on ECB briefing
                                
 * For up-to-the-minute market news, click on [STXNEWS/EU]
                                
 
                                
 By Blaise Robinson
                                
 PARIS, July 8 (Reuters) - European shares gained ground on
Thursday with investors scooping up battered banking stock as
details of the sector's stress tests started to emerge, adding
to a tentative recovery from a sharp two-week sell-off.
                                
 The European Central Bank and the Bank of England both held
interest rates on hold, as widely expected, leaving investors to
wait for a briefing by ECB President Jean-Claude Trichet, due to
start at 1230 GMT.
                                
 Trichet will face pressure to say if the central bank was
worried by rising bank-to-bank lending rates, whether it will
extend liquidity support, and how it sees Europe's bank stress
tests panning out.
                                
 "The market hopes for a smooth briefing, with no negative
news that could halt the little recovery we just had. But I
doubt it could really propel stocks much higher. The bounce is
done now," said David Thebault, head of quantitative sales
trading, at Global Equities.
                                
 At 1200 GMT, the FTSEurofirst 300 <.FTEU3> index of top
European shares was up 0.7 percent at 1,012.52 points, gaining
ground for the third session in a row.
                                
 The Euro STOXX 50 <.STOXX50E> was up 0.7 percent at 2,652.76
points, rising towards a key resistance level at 2,669.29, the
38.2 percent retracement level of the index's move to a May low
from an April high.
                                
 Sentiment also improved after Wall Street's S&P 500 <.SPX>
surged on Wednesday and closed above 1,040 points, seen as a
major resistance level.
                                
 "We are getting bits and pieces on the stress tests,
officially or from anonymous sources talking to the media, but
the bottom line is the whole thing is getting more transparent,"
Thebault said.
                                
 "We are not sure yet how tough the tests will be in pricing
in potential haircuts, but anyway the market is already pricing
in the risks of haircuts and liquidity risks."
                                
 
                                
 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
 For a Take-a-Look on stress tests:     [ID:nLDE6601T6]
                                
 For a Take a Look on outlook for markets: [ID:nLM7620]
                                
 For Breakingviews column on the tests: [ID:nLDE6670DZ]
                                
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 
                                
 The Committee of European Banking Supervisors, conducting
the tests, said on Wednesday 91 banks across Europe were taking
part, including many regional banks seen as the weakest.
                                
 However, the committee fell short of detailing exactly was
included in the tests in terms of potential haircuts on
sovereign debt in the euro zone.
                                
 "We have the ECB and bank stress tests coming up and
investors are buying on hope they will not come out with bad
news," said Philippe Gijsels, head of research at BNP Paribas
Fortis Global Markets in Brussels.
                                
 "When the market has been oversold and you are faced with an
event which you are not sure about it is wise to buy the market
as you could be sitting on a nice profit."
                                
 Banking stocks, which feature among the worst performers so
far this year, rallied strongly with Natixis <CNAT.PA> gaining 4
percent, Dexia <DEXI.BR> up 3.6 percent and Deutsche Bank
<DBKGn.DE> up 2.2 percent.
                                
 Europe's STOXX banking index <.SX7P>, up 1.4 percent on
Thursday, was still down 13 percent since mid-April when fears
Greece's debt crisis could spread to other euro zone countries
and derail the region's economic recovery intensified.
                                
 Also boosting the battered sector on Thursday, Credit Suisse
raised its weighting on banks to "benchmark" from "10 percent
underweight", citing a better macroeconomic environment,
attractive valuations and taxation and regulation plans being
watered down.
                                
 According to Thomson Reuters data, European banks trade at
10.6 times expected earnings, while the broad STOXX 600 index
<.STOXX> trades at 11.2 times expected earnings.
                                
 Positive news also came from economic data, with numbers
showing a stronger-than-expected rise in German industrial
production in May, helped by a jump in manufacturing output.
                                
 Around Europe, Britain's FTSE 100 index <.FTSE> gained 1.4
percent, Germany's DAX index <.GDAXI> rose 0.5 percent, and
France's CAC 40 <.FCHI> added 1.3 percent.
 (Reporting by Blaise Robinson; Editing by Dan Lalor)