Strong banks drive European shares higher
* FTSEurofirst 300 up 0.3 pct, Euro STOXX 50 up 0.4 pct
* Banks rally after regulators ease leverage rule
* Investors shift from Germany to periphery -SG
* Peugeot jumps on Chinese plant report
By Tricia Wright
LONDON, Jan 13 (Reuters) - European stocks advanced on Monday, bolstered by a rally in banking shares after regulators agreed to soften new leverage ratios for banks.
Deutsche Bank climbed 4.3 percent, Barclays added 2.7 percent and UBS rose 3.2 percent.
On Sunday, global banking regulators said they would modify the way the new bank rule, which is meant to rein in risky balance sheets from 2018, is compiled, to try to avoid crimping financing for the world's economy.
The easing of the rule is the latest sign of how regulators have become more willing to accommodate banks as the focus switches to helping economies recover.
The STOXX bank index rose 1.6 percent, extending its gains this year to almost 6 percent.
"The fact that the ratios have been eased means that some of the forecasts for bank profitability in 2014 can probably be revised up slightly and people are just feeling slightly more optimistic about the sector," said Matt Basi, head of sales trading at CMC Markets.
At 1530 GMT, the FTSEurofirst 300 index of top European shares was up 0.3 percent at 1,324.98 points, while the euro zone's blue-chip Euro STOXX 50 index was up 0.4 percent at 3,115.62 points, both just a few points below five-year highs hit recently.
Around Europe, the UK's FTSE 100 index, Germany's DAX index, and France's CAC 40 were all up 0.4 percent.
Euro zone peripheral markets continued to outperform, with Spain's IBEX up 1 percent and Italy's FTSE MIB up 0.8 percent.
"There's been a switch in terms of investment flows in the past few months, with people getting out of German equities and into peripheral euro zone markets as the risk premiums continued to fall," said Roland Kaloyan, global asset allocation strategist at Societe Generale CIB.
"German equities have been a safe-haven during the euro zone debt crisis, but there are now doubts about the country's ability to maintain its strong economic pace. At the same time, investors are finding better opportunities in the euro zone periphery."
So far this year, the IBEX and the MIB are both up around 4 percent, while Portugal's PSI20 has surged some 8 percent, outpacing the broad FTSEurofirst 300 which has gained just 0.6 percent.
European stocks overall have enjoyed massive investment inflows recently, especially from U.S. investors.
In 2013, European equities saw record net inflows of $16.3 billion from U.S.-based investors, and the inflows accelerated sharply in the last quarter of the year.
Goldman Sachs' chief global equity strategist Peter Oppenheimer said he sees scope for further inflows from U.S. investors while European corporate profits bounce back.
"We expect European earnings to grow by 14 percent in 2014 and 13 percent in 2015," he told a Goldman Sachs conference in London on Monday, reaffirming Goldman's 'overweight' position on the European banking sector.
"This is an area we think will continue to lead equity markets higher," Oppenheimer said.
Shares in PSA Peugeot Citroen featured among the top risers, jumping 7.8 percent on media reports that the French car maker plans to build a fourth plant in China with its partner Dongfeng.
Traders said the rally was fuelled in part by short covering. Shares in the struggling automaker are among the most shorted across Europe, with 16 percent of the company's shares out on loan, according to data from Markit.
Wm Morrison also saw good gains, ahead 6.1 percent, after a report said an activist U.S. investor will call on the UK grocer to shake-up its property portfolio in the wake of the chain's dismal Christmas sales.
Today's European research round-up