Gains in southern periphery buoy European equities
* Peripheral European markets outperform
* Lisbon's PSI-20 rises as bond yields fall
* Volumes low as public holiday in most of Europe
* FTSEurofirst 300 at highest since early 2008
* Euro STOXX 50 near 6-year high
LONDON, June 9 (Reuters) - Spain, Italy and Portugal outperformed other European stock markets on Monday, as investors stepped up bets that they would benefit most from the European Central Bank's latest economic stimulus measures.
The gains in Madrid, Milan and Lisbon propped up key pan-European equity indexes, although volumes were thin due to public holidays in several European countries.
Lisbon's PSI-20 equity index rose 0.3 percent. Also supporting sentiment was a drop in Portugal's 10-year bond yield to its lowest level since January 2006 on expectations the country's recovery from the euro zone debt crisis would gather pace.
In Italy and Spain, benchmark share indexes rose by 0.4 percent, building on last week's rally that was driven by the European Central Bank's new economic stimulus steps.
The ECB on Thursday cut interest rates, launched a series of measures to pump money into the euro zone economy and pledged to do more if needed to fight off the risk of Japan-like deflation, sparking a rally in European equities.
The Italian and Spanish markets are more heavily weighted towards "cyclical" stocks such as banks, which often outperform in a strengthening economic cycle, than other European markets.
"People feel that the banks in those countries are most exposed to improved funding," said Andrea Williams, European equities fund manager at Royal London Asset Management.
The euro zone's blue-chip Euro STOXX 50 index rose 0.1 percent to 3,296.29 points, close to a six-year high.
The pan-European FTSEurofirst 300 index advanced by 0.3 percent to 1,392.16 points, near its highest level since early 2008.
Luca Paolini, chief strategist at Pictet Asset Management, said he would favour such "cyclical" equity sectors for now, while Saxo Banque trader Pierre Martin said the trend for European stock markets remained positive.
"Overall, it's a great scenario for equities: very low interest rates, very low inflation, and the U.S. and European economies in recovery mode," he said.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up (Additional reporting by Blaise Robinson; Editing by Toby Chopra/Louise Heavens/Susan Fenton)
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