* FTSEurofirst 300 index up 1.4 pct, set for weekly gains
* Sabadell rises after strong results, Italy banks up
* basic resources stocks hit by warning over steel market (Adds details, updates prices)
By Danilo Masoni and Atul Prakash
MILAN/LONDON, Jan 29 (Reuters) - European equities looked set to end the week on a high after the Bank of Japan stunned markets on Friday by voting narrowly to introduce negative interest rates in a bid to revive inflation.
Equities were also underpinned by hopes the U.S. Federal Reserve would go slow on future interest rate hikes following weaker-than-expected GDP data from the world’s largest economy.
Japan’s central bank said it would charge 0.1 percent for excess reserves parked with it, an aggressive deflation-fighting policy pioneered by the European Central Bank.
“The BOJ decision was a massive surprise, it’s further money printing from Japan on a massive scale after having told the markets that they’re not doing it. That triggered European investors to push the risk on button on,” Will Hamlyn, investment analyst at Manulife Asset Management said.
The pan-European FTSEurofirst 300 index had risen 1.4 percent by 1437 GMT after falling by 1.7 percent in the previous session. The gains meant the index was set to notch up its second consecutive week of gains.
Japan has been wrestling with deflation since the 1990s, and its central bank is concerned about the time it is taking to reverse consumers’ expectations of price reductions.
“The signal that the Bank of Japan gives reminds us that central banks will continue to play their role of fighting deflation,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.
“These actions typically drive up risky assets.”
Among top sectoral movers, the European banking index rose 1.9 percent after an encouraging earnings report from Spain’s Banco Sabadell and with some Italian banks underpinned by speculation over possible mergers.
Banco Sabadell gained 11 percent after posting a 91 percent jump in full-year net profit, boosted by its purchase of Britain’s TSB that more than offset rising provisions for bad loans in the fourth quarter.
Italy’s Popolare di Milano rose 5 percent and Banco Popolare was up 7.6 percent, with traders citing speculation they could be closer to a possible merger.
Monte dei Paschi di Siena rose 1 percent after posting an annual profit for the first time in five years, helped by a change in the way it booked a controversial derivative trade, and after its chief executive told a newspaper that a tie-up with rival UBI Banca could make sense. UBI edged up 0.5 percent.
JCDecaux shares surged 4.3 percent, the top FTSEurofirst 300 gainer, after the French outdoor advertising company reported higher revenues.
However, Norwegian fertiliser producer Yara fell 2.7 percent after posting fourth-quarter core profit below expectations, hit by lower sales and an impairment related to its plants in France and Trinidad.
Basic resources stocks fell 1.3 percent, making them the top sectoral faller, after Thyssenkrupp warned that the situation on steel markets was grim and could have an impact on its outlook. ArcelorMittal, the world’s biggest steelmaker, fell 3.5 percent.
Energy stocks reduced gains and were up 0.2 percent as crude prices turned lower after hopes of a deal by major exporters to cut production faded slightly.
Today’s European research round-up (Additional reporting by Danilo Masoni in Milan; Editing by Mark Heinrich and Alexander Smith)