* FTSEurofirst 300 up 0.2 pct, Euro STOXX 50 up 0.4 pct * U.S. Senate ready to announce deal * Luxury sector beaten down after poor LVMH sales figures * Analysts further trim forecasts ahead of earnings season * Hedge fund short sellers continue to circle Peugeot By Blaise Robinson PARIS, Oct 16 European shares rose on Wednesday, with a blue-chip benchmark hitting a 2-1/2 year high as a deal to avert a U.S. debt default looked imminent. The Senate appeared ready to announce a last-minute agreement to end the weeks-long fiscal impasse. "There's a strong consensus that a deal is about to be reached," said Christian Jimenez, fund manager and president of Diamant Bleu Gestion, in Paris. "The 'great rotation' in asset allocation in favour of stocks is intact, although we need to see some improvement in the micro side. With all the negative surprises coming from companies recently, we're not there yet." The FTSEurofirst 300 index of top European shares rose 0.2 percent to 1,265.66 points, while the euro zone's blue-chip Euro STOXX 50 index added 0.4 percent to 3,015.40 points, a level not seen since May 2011. "The Euro STOXX 50 is channeling recent highs and even if we do slip 50 points if there's no immediate deal, we'd only be easing out of what is still a bull phase," said XBZ European equity options broker Mike Turner. Germany's DAX index gained 0.5 percent after hitting a record high at 8,861.28 points, but France's CAC 40 bucked the trend, losing 0.3 percent, hurt by a drop in the shares of one of its biggest blue chips, LVMH. The owner of bag maker Louis Vuitton fell 4.3 percent - representing a wipeout of 3.1 billion euros ($4.2 billion) in market value - after posting a surprise slowdown in sales growth, knocking shares in the sector, with both Hermes and Gucci owner Kering down 0.9 percent. Shares in LVMH - once a darling of the CAC 40 - have now erased all their gains made so far this year, featuring among the three worst stock performances in 2013 on Paris's benchmark index, which is up 17 percent year-to-date. Shares in food giant Danone also dropped on Wednesday, losing 2.3 percent after warning on its sales and profit outlook. In the past two weeks, analysts have been trimming their forecast for 2013 earnings from European companies by 0.5 percent, according to StarMine, factoring in profit warnings from a range of companies. Shares in struggling French car maker PSA Peugeot Citroen tumbled 4.4 percent, extending its losses this week to 17 percent. The stock has been knocked lower by mounting fears the company, which burns nearly 170 million euros ($230 million) a month including restructuring costs, will need a massive capital increase. Peugeot's latest slump has attracted fresh interest from hedge fund short-sellers, with the level of Peugeot shares out on loan rising to 8.8 percent this week, according to data from Markit. Odey Asset Management LLP, D.E. Shaw, Marshall Wace LLP and Adage Capital Management are among the hedge funds with the biggest short positions on the stock.