Utilities lift Europe shares, rally seen as brief
* FTSEurofirst 300 up 0.2 pct, Euro STOXX 50 rises 0.3 pct
* Upgrade lifts German utility stocks E.ON and RWE
* Rally seen short-lived due to lingering Europe debt fears
LONDON, June 26 (Reuters) - European shares snapped a three-day losing streak to rise on Tuesday, helped by gains at heavyweight utility stocks, though traders and investors said any rally would be short-lived due to lingering worries over Europe's debt crisis.
The FTSEurofirst 300 index rose 0.2 percent to 988.03 points, recovering slightly after suffering its biggest one-day fall in more than three weeks on Monday.
The Euro STOXX 50 gained 0.2 percent to 2,135.15 points.
However, both indexes had turned negative at one point as bond yields in Spain and Italy continued to rise, highlighting the difficulties facing European leaders who meet at a summit on Thursday to try and tackle the region's economic problems.
"We sold into the rally this morning. That's the pattern that is likely to continue until we get some clarity on Europe," said Adrian Redmond, a senior trader at JN Financial.
The FTSEurofirst 300 index has been trading in a range of around 950-1,017 points over the last month, and dealers said this pattern was likely to continue in the coming months.
STRONGER UTILITY STOCKS OFFSET WEAKER AUTOS
German utilities E.ON and RWE topped the Euro STOXX 50 leaderboard, as an upgrade from broker Bank of America Merrill Lynch spurred both stocks to rise by more than 2 percent.
In contrast, a downgrade by Citigroup of German car manufacturer BMW hit the auto sector. BMW fell 2.3 percent, with rivals Daimler and Volkswagen also declining by more than 1 percent.
Equity markets also came under further pressure from fresh signs of economic strain in Spain, which has already sought a bailout of up to 100 billion euros for its banks, and Italy - seen as a next possible victim in a debt crisis which has already convulsed Spain and Greece.
Italy's two-year debt costs rose to 4.712 percent, a new high since December, while Spanish 10-year bond yields rose 6 basis points to 6.70 percent.
European leaders are set to discuss a cross-border banking union, closer fiscal integration and the possibility of a debt redemption fund as part of efforts to tackle the worsening debt crisis at their two-day summit which starts on Thursday.
However, many investors remain sceptical whether they will be able to agree on concrete measures or not.
"People are looking to trade on any bounce in the market rather than position themselves on the long-side. Overall, the bias remains towards the downside on European equities," said Mike Turner, European equity options broker at XBZ Ltd.
The Euro STOXX 50 index has fallen around 4 percent since reaching a peak of around 2,230 points last Thursday, surrendering more than 50 percent of a recovery rally started in early June.
The index's next support level is at 2,120 points, which represents the 61.8 percent Fibonacci retracement of this month's rally. On the upside, the index's next resistance level is at 2,141 points, the 50 percent retracement of the rally.
The benchmark is also on track to post a loss of 14 percent for the second quarter, its worst quarterly performance since last year's third quarter.
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