Europe shares record biggest weekly gain since 2008
* FTSEurofirst 300 up 1 percent
* Banks boosted by hopes of euro zone agreement
* Caution remains ahead of Dec.9 meeting
By Francesco Canepa
LONDON, Dec 2 (Reuters) - European shares rose on Friday, recording their biggest percentage weekly gain since late 2008 on hopes euro zone leaders were coming together to find a solution to the debt crisis.
The STOXX Europe 600 Banking Index rose 4.3 percent after French President Nicolas Sarkozy said he and German Chancellor Angela Merkel would put forward joint proposals to achieve greater fiscal integration in Europe and support countries in difficulty.
"We're many miles away from a resolution of this situation in Europe, so we have to be very wary about these sort of moves (in share prices)," Richard Jeffrey, chief investment officer at Cazenove Capital, said.
"What you can say is that the move you have seen this week indicates a strong level of underlying support for equities (and) on valuation grounds that's certainly justified," added Jeffrey, who helps manage around 15 billion pounds ($23.4 billion).
Euro zone lenders, which own the largest share of the bloc's sovereign debt, surged 5.3 percent, ending the week up 16.5 percent after losing nearly half of their value since July.
Germany's Commerzbank and France's BNP Paribas , both up around 10 percent, were among the top gainers after unveiling key management changes.
They helped the FTSEurofirst 300 close 1 percent higher at 985.34, for a weekly gain of 8.5 percent, after a 21 percent drop since July.
The index trimmed gains in the afternoon after U.S. jobs data, which fell short of suggesting a significant quickening of the recovery in the world's largest economy. The U.S. unemployment rate fell to a 2-1/2 year low but the number of jobs created was modest.
Merkel and Sarkozy's proposals, due to be unveiled at an EU meeting on Dec. 9, are expected to include the introduction of coercive powers to reject national budgets and impose automatic sanctions on serial deficit sinners.
These measures are seen as preconditions for Germany's backing of greater intervention by the European Central Bank to ease pressure on sovereigns and banks.
"My fear remains, and fears means a two-thirds probability, that whatever they come up with now is good but not good enough, and in January an escalating crisis will then force the ECB to pull out all the stops," Holger Schmieding, chief economist at Berenberg Securities, said.
Schmieding added he was wary of current market euphoria, noting hopes of an imminent solution to the debt crisis had repeatedly triggered illusory equity rallies earlier this year.
His fears are shared by Jack Jonk, head of equities at Delta Lloyd Asset Management, which manages around 40 billion euros in assets, of which around 10 billion euros is in equities.
Jonk said his firm remained "underweight" equities across its cross-asset mandates and that the strong relief rally in recent days was still susceptible to further declines as politicians grapple with the debt crisis.
As uncertainty in Europe persisted and the region's economic outlook deteriorated, UBS recommended stocks with global exposure, such as Rio Tinto, Pearson and Prudential. (Additional reporting by Simon Jessop, Brian Gorman and Blaise Robinson; Editing by David Holmes)
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