UPDATE 1-European Factors to Watch-Shares set to pause at 5 year highs

Mon Dec 30, 2013 2:23am EST

LONDON Dec 30 (Reuters) - European stocks were seen steadying on Monday after two weeks of strong gains that have pulled markets to five-year highs, with a risk that Italian lender Monte Paschi could be nationalised in focus in what could otherwise be a quiet session.

At 0720 GMT, futures for the Euro STOXX 50, Britain's FTSE 100 , Germany's DAX and France's CAC were flat to 0.2 percent higher.

The pan-European FTSEurofirst 300 index ended up 1.1 percent at 1,314.29 points on Friday, its highest closing level since mid-2008.

The benchmark index, which has surged 5.3 percent since Dec. 17, is on track to post a gain of 16 percent for 2013, with just two sessions left in the year.

The euro zone's blue chip EuroSTOXX 50 has rallied 6.6 percent over the last two weeks, and also closed at a five year high. Both indexes have been boosted following the U.S. Federal Reserve's decision to slow its stimulus programme, with investors taking solace in the promise of lower interest rates for longer and an economy that seems to be strengthening.

Eyes will be on U.S. data points such as the midwest and Dallas Fed manufacturing surveys and pending homes data to reiterate this stronger growth picture in what is a quiet day on the European data front.

Italian blue chips and the euro zone banking sector will be in focus after a delay to vital fundraising at Banca Monte dei Paschi di Siena over the weekend increased the risk that Italy's third-biggest bank would have to be nationalised.

"European markets look set to pull back modestly on open, with some traders pointing to the fact we could be seeing Monte Paschi nationalised," Chris Weston, chief market strategist at IG, wrote in a trading note.

Volumes could be thin this week, with some major European markets closed on Wednesday and open for only half a day on Tuesday following on from last week's holiday-curtailed trading activity.

-------------------------------------------------------------------------------- > Japan shares seek to end bumper year on high note > US STOCKS-Wall St ends mostly flat, but scores weekly gains > Nikkei edges higher, set for best year since 1972 > TREASURIES-U.S. 10-year yield hits 2-year high > FOREX-Yen slides to 5-yr low, euro near 2-yr high vs dlr > PRECIOUS-Gold slips, rising equities curb investors' interest > Copper dips from 4-month top, demand hopes underpin prices > Brent edges up amid unrest in South Sudan, Libya

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