* Euro STOXX 50 up 0.6 pct, Greece’s ATG index up 6.2 pct
* Markets cheer prospects of pro-bailout win in Greek election
* Risks focus shifts to Spanish banks, IBEX down 0.4 pct
By Toni Vorobyova
LONDON, May 28 (Reuters) - European equities rose on Monday, cheered by opinion polls suggesting Greece’s pro-bailout parties may be able to form a government committed to staying in the euro, but a selloff in Spanish banks underlined the region’s remaining problems.
The weekend polls went some way towards reassuring investors worried about a possible Greek euro zone exit in case of a leftist victory in the June 17 election - an event with unpredictable and potentially costly contagion risks for the other economies in the currency bloc and beyond.
With European shares down 17 percent since mid-March and within sight of recent six-month lows, the cheap valuations allied to the poll news tempted some investors back.
But longer-term players remained on the sidelines, unwilling to take on any bets before the Greek vote and in the face of ongoing uncertainty about the health of the euro zone economy and its banking sector.
“It’s a double-edged sword,” said Sylvain Goyon, head of equity market strategy at Natixis in Paris.
”Of course the market is extremely attractive in terms of valuations today, in line with the levels we were seeing in the early 1980s. That being said, are you really willing to take the risk before June 17? ...
“If you are willing to play short-term rebound - why not? But if you are waiting to take a fundamental, long-term position on the market, then it’s probably too early.”
The Athens bourse, which has plunged to levels not seen in more than two decades, bounced up 6.2 percent. Shares in some other European markets are at similar historic lows.
The Euro STOXX 50 added 0.6 percent to 2,174.48 points by 1037 GMT. France, whose banks have the highest exposure to Greek debt in the region, estimated at some $44.4 billion, outperformed, rising 0.9 percent.
Public holidays in the U.S. and in several European countries kept volumes muted.
Strategists at Societe Generale estimated an orderly Greek euro zone exit could shave 10 percent off the value of euro zone blue chips, while a disorderly one could see the Euro STOXX 50 nearly halve in value. Goldman Sachs, looking at the broader STOXX 600 index, forecast a fall of up to 12 percent in case of a speedy, unilateral Greek euro zone departure.
Given the risks, Goyon at Natixis recommended exposure to U.S. markets over European ones, adding that in Europe exporters were probably the safest plays.
For the year so far, the U.S. benchmark S&P 500 is up 4.8 percent against a fall of 0.2 percent on Europe’s STOXX 600. That comes against a backdrop of stronger economic data and better corporate news from across the Atlantic - to date, 72 percent of U.S. blue chips have met or beaten forecasts with first quarter earnings against 58 percent of European ones, according to Thomson Reuters StarMine data.
Highlighting euro zone economic weakness, Italian business confidence plunged to its lowest in almost three years in May, confounding forecasts for a slight improvement.
The Italian bourse underperformed, adding just 0.5 percent. But one of the worst showings in Europe came from Spain, where the IBEX dropped 0.4 percent as investors fretted about the cost of shoring up its banking sector.
Shares in Bankia plummeted when trading resumed after they were suspended on Friday before Spain’s fourth biggest lender asked the state for 19 billion euros ($23.77 billion) - nearly twice as much as the market had expected.
“The exposure of the banking sector to this real estate crisis is a ticking bomb,” said Goyon at Natixis.
“We would remain extremely cautious on the Spanish market.”
Technical charts also pointed to more weakness for Europe’s equity markets, with financial stocks looking like attractive sell targets.
“We remain in a very challenging environment. There are pockets of strength in Europe, but ... the path of least resistance is to the downside, so shorts are going to be more rewarding,” said Riccardo Ronco, head of technical analysis at Aviate Global.
“Euro STOXX 50 can try to move towards 2,000, the trend is still down for me ... We didn’t reach a selling climax in terms of volumes and volatility. What we are seeing now suggests more of a breather rather than a situation of improvement.”