European shares rally to six-month high on economic data

FRANKFURT (Reuters) - European shares hit a six-month high on Wednesday as encouraging economic numbers boosted sentiment, while Italian banks gained after the Italian Central Bank made it easier for banks to boost their capital base.

The FTSEurofirst 300 index of top European shares .FTEU3 was up 1.9 percent at 1,057.08 points after climbing to its highest since early August.

Sentiment was boosted by data showing that the manufacturing sector in Germany, China and the United States were in better shape than expected but strategists warned not to read too much into the data for Europe.

"Keep in mind that we are only in the early stages of implementation of the austerity measures across Europe, so there is pain yet to come. As such, we would not be carried away by these numbers," said Duarte Caldas, market strategist at IG Market.

The STOXX Europe 600 Banking index .SX7P rose 3.8 percent, while the European basic resources index .SXPP was up 3.1 percent, helped by the Chinese data.

Italian banks were among the top gainers after Bank of Italy allowed more flexibility for banks in buying back subordinated bonds, making it easier to boost their capital base.

Banco Popolare (BAPO.MI), Banco Monte dei Paschi die Siena (BMPS.MI), BP Milano (PMII.MI) and BP Emilia (EMII.MI) won between 7.8 and 10.9 percent. The shares helped to push Italy's blue-chip index .FTMIB 2.2 percent higher.

Sentiment in the banking sector was also helped by successful bond issues by two banks from southern countries.

Italy's Intesa Sanpaolo (ISP.MI) and Spain's Santander (SAN.MC), tapped the market and raised 1.5 billion euros and 2 billion respectively.

The Euro STOXX 50 .STOXX50E, the euro zone's blue chip index, rose 2.2 percent to 2,470.79 points.

Technical analysts said the index is supported by its 21-day moving average and is not particularly overstretched either. The pressure is on the upside and its close above 2,467 points was a near-term positive signal.

Across Europe UK's FTSE 100 index .FTSE was up 1.9 percent, France's CAC 40 .FCHI won 2.1 percent and Germany's DAX .GDAXI was 2.4 percent higher at 6,616.64 points.

Option traders warned that investors have increasingly placed for a correction on the German stock market. They sold call options on the DAX, while covering their positions with put options, betting on lower stock prices.

"Since mid-December, the DAX is up almost 1,000 points, which many investors think is overdone," said Joachim Radon, a trader at Europe's largest retail derivatives exchange Euwax.

On the derivatives marketplace Scoach in Frankfurt bought puts and sold calls ?on the DAX made up more than 64 percent of all DAX trading volumes. The DAX turbo put with strike price and knock-out barrier at 6,925 points from Citigroup was the most traded product, followed by a DAX put DEBN7Q8M.F at 6,000 points from BNP Paribas.

(Additional reporting by Carsten Lootze in Frankfurt and Atul Prakash in London; Editing by Jon Loades-Carter)