UPDATE 1-Fox-Pitt upgrades Zions Bancorp to outperform

(Changes source, adds details, share movement)

Sept 2 (Reuters) - Fox-Pitt Kelton upgraded Zions Bancorp (ZION.O) to "outperform" from "in-line" saying it has been a high growth, high performing bank despite encountering rising credit headwinds over the past year.

Shares of the western U.S. banking chain rose as much as 11 percent to $30.00 in morning trade on Nasdaq.

They have fallen more than 42 percent so far this year before Tuesday's gains, while the KBW index of bank stocks .BKX has fallen more than 25 percent this year.

"While fundamental challenges are likely to persist for the foreseeable future largely due to elevated credit costs and CDO related writedowns, we believe they are manageable," analyst Brent Christ said in a note to clients.

Christ said when Zions emerges from the present credit cycle, shareholders would be left with a company which has the most enviable footprint in banking, a straight shooting management team, and a strong distribution network and core deposit base which is significantly under-earning right now.

The analyst said a common equity raise by Zions could serve as a positive catalyst for the stock and that this capital raise would remove hurdles for many to buy the company's shares.

"...we do not think it is too early to attempt to estimate the company's earning power as it exits this credit cycle, which, like at most banks, we believe is considerably higher than earnings today," Christ said.

He said while he saw potential for significant value creation over time at Zions, the risk/reward was favorable for the stock presently.

The KBW index was up 2.6 percent in morning trade on Tuesday. (Reporting by Ramya Dilip in Bangalore; Editing by Gopakumar Warrier)