Robust Spanish data, ECB help Europe stocks extend rally
* FTSEurofirst 300 up pct, rising for 8th session in row
* Madrid's IBEX outperforms after strong PMIs
* ECB opens door to unconventional measures
PARIS, April 3 (Reuters) - European shares rallied on Thursday, with some national indexes hitting multi-year highs, after the European Central Bank opened the door for unconventional measures to thwart the risk of deflation.
Spanish stocks strongly outperformed as data showed the country's service sector expanded more than expected last month, fuelling hopes economic recovery is picking up pace.
Markit's Purchasing Managers' Index for the service sector, which makes up about half of economic output, rose to 54.0 in March from 53.7 in February, marking the fifth straight month the index was above the 50 line separating growth from contraction.
Spanish banks led the rally, with BBVA rising 3.3 percent and Banco Popular gaining 3.2 percent. Madrid's IBEX surged 1.7 percent, to 10,602.6 points and hitting a near-three year high.
"Sooner (rather) than later we will see the IBEX hitting 11,000 points. People don't want to miss the rally, so there's a strong buying pressure in the market," said Margarita Rivas, senior investment strategist at GVC Gaesco Valores, in Madrid.
At 1430 GMT, the FTSEurofirst 300 index of top European shares was up 0.4 percent at 1,349.14 points, gaining ground for the eighth consecutive session, its longest winning streak since last October.
"The message is pretty clear: the ECB is ready to act, and they have all the tools ready, and the fact that they are unanimous about it is very important. This is quite positive for equities," said David Thebault, head of quantitative sales trading at Global Equities.
The ECB held its main interest rate at a record low of 0.25 percent on Thursday, and Draghi told a news conference that if low inflation dragged on too long, action would be taken, marking a significant shift of tone from last month when he appeared to set quite a high bar to action.
"The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation," he said.
He added that printing money - quantitative easing - had been discussed at Thursday's policy meeting.
Euro zone banks were among the biggest gainers, with Natixis up 3.8 percent, UniCredit up 3.2 percent and Banco Espirito Santo up 2.8 percent.
The euro zone's blue-chip Euro STOXX 50 index was up 0.9 percent at 3,216.22 points, a level not seen in 5-1/2 years.
The UK's FTSE 100 index was flat, Germany's DAX index up 0.4 percent, France's CAC 40 up 0.7 percent, hitting a 5-1/2 year high, and Italy's FTSE MIB up 1.4 percent, just shy of a near three-year high hit in the previous session.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up
(Editing by Ruth Pitchford)