UPDATE 1-Italy outperforms as European equity rebound strengthens
* Milan is Europe's top-performing bourse, up 1.6 pct
* Investors welcome likelihood of Renzi as new Italy PM
* FTSEurofirst 300 ends up 0.5 pct at 1,332.30 points
* ESTOXX 50 rises 0.7 pct to 3,119.06 points
* German and French economic growth also lifts equities
LONDON, Feb 14 (Reuters) - Italy's stock exchange led European shares higher on Friday as investors reacted positively to Rome's likely new prime minister, while signs of economic growth in Germany and France gave a further fillip.
The pan-European FTSEurofirst 300 index closed up 0.5 percent at 1,332.30 points to mark its seventh rise in eight sessions, while the euro zone's blue-chip Euro STOXX 50 index advanced by 0.7 percent to 3,119.06 points.
Italy's FTSE MIB equity index was the region's best-performing stock market as it rose 1.6 percent to bring its gains since the start of 2014 to nearly 8 percent, outperforming a 1.2 percent rise on the FTSEurofirst 300.
Italian bond yields also fell to near eight-year lows as investors warmed to the prospect of centre-left leader Matteo Renzi becoming the country's new prime minister.
Emanuel Arbib, head of London-based Integrated Asset Management, said Renzi could bridge political divisions and reduce taxes, which could help Italian companies.
"I think the FTSE MIB will be OK this year. In 2015-2016 taxes could come down and bureaucracy could come down and that will be good for companies," said Arbib.
GROWTH IN FRANCE AND GERMANY
The German and French stock exchanges rose after data showed better-than-expected economic growth in the euro zone's two biggest economies.
France's CAC equity index rose 0.6 percent while Germany's DAX gained 0.7 percent to 9,662.40 points, pushing the DAX back towards a record high of 9,794.05 points reached in late January.
Andrew Arbuthnott, head of European large-cap equities at Pioneer Investments, said signs of a gradual economic recovery in Europe should benefit the region's banking sector.
"We believe the macro environment in Europe will continue to improve and the banking sector is a natural beneficiary," he said.
German industrial conglomerate ThyssenKrupp rose 3.8 percent to feature among the top performers on the FTSEurofirst 300 after it posted better-than-expected quarterly operating profits.
According to Thomson Reuters data, out of the 122 companies in the pan-European STOXX 600 index to have reported fourth quarter earnings so far, 51 percent have reported earnings above analyst expectations.
This is higher than the long-term average of 47 percent and above the average over the past four quarters of 46 percent.
Some analysts have expressed disappointment over the European corporate results so far, but Barclays' equity research analyst Alex Stewart had a more positive assessment.
"Earnings have beaten by more than at any point since the first quarter of 2012. But perhaps most importantly, the pace of downgrades has slowed," he said.
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