* FTSEurofirst 300 up 0.4 pct, Euro STOXX 50 up 0.7 pct
* Euro zone stock valuations at near 10-month high
* Risks seen on the upside ahead of ECB’s second LTRO
By Blaise Robinson
PARIS, Feb 29 (Reuters) - European stocks rose on Wednesday morning, as investors bet that a second wad of cheap, long-term funds from the European Central Bank would further ease tension in the banking sector and boost confidence in the wider market.
Banking stocks led the gains, with France’s Credit Agricole up 4 percent and Spain’s Bankinter up 2.8 percent ahead of the results of the ECB’s second long-term refinancing operation, due at around 1020 GMT.
The FTSEurofirst 300 index of top European shares was up 0.4 percent at 1,080.19 points at 0855 GMT, while the euro zone’s blue-chip Euro STOXX 50 index added 0.7 percent to 2,537.11 percent.
The recent rally has propelled euro zone stock valuations to levels not seen in nearly 10 months. The Euro STOXX 50 trades at 9.6 times 12-month forward earnings, a level not seen since mid-May 2011, though well below its 10-year average of 11.7, according to Thomson Reuters Datastream.
“The risk is on the upside. A strong figure would be seen as a liquidity boost, while a lower-than-expected figure could be seen as a sign that banks are healthy and don’t need the money,” said Joost van Leenders, strategist at BNP Paribas Investment Partners, which has 492 billion euros ($662 billion) in assets under management.
Last December the ECB made its first offer of three-year money at rock-bottom interest rates, drawing demand of nearly half a trillion euros and sparking a relief rally in European equities and prompting a sharp fall in borrowing costs for beleaguered Italy and Spain sharply.
Money market traders polled by Reuters expect the long-term refinancing operation (LTRO) to attract roughly the same volume of bids.
“The change in monetary policy by the ECB and its two funding operations have taken away the tail risk. By bringing in more liquidity, the second LTRO will have a lasting effect,” van Leenders said.
BNP Paribas IP, which is “neutral” equities overall, has recently turned “overweight” European equities, as “a lot has been discounted already”, the strategist said.
Shares in sectors seen as defensive, such as healthcare and telecoms, were in retreat, with Vodafone down 1.3 percent and Novartis down 0.3 percent.
Around Europe, UK’s FTSE 100 index was down 0.1 percent, Germany’s DAX index up 0.6 percent, and France’s CAC 40 up 0.4 percent.
The STOXX euro zone banking index, which has surged 30 percent since a low in early January, was up 1.5 percent on Wednesday.
“Today’s LTRO, as well as the Dow closing above 13,000 points last night, is boosting confidence,” said Guillaume Dumans, derivatives trader and co-head of 2Bremans, a Paris-based research firm using behavioural finance to monitor investor sentiment.
“The day’s trend is positive. Our daily sentiment indicator reflected that this morning.”
On Tuesday, the Dow Jones industrial average closed above 13,000 for the first time since May 2008, while the S&P 500 also hit a milestone, sending a bullish signal.