* FTSEurofirst 300 up for 5th straight session, rises 0.1
* Euro STOXX 50 index briefly hits 5-1/2-year high
* Italian banks rally on Popolare, Monte Paschi boost
(Updates at settle, adds volume, Fed)
By Francesco Canepa
LONDON, March 31 Milan-listed shares
outperformed skittish European bourses on Monday, helping a euro
zone index touch a 5-1/2 year peak as the market welcomed signs
that smaller Italian lenders are boosting their capital and
winning over international investors.
Broader sentiment was also supported by expectations of new
stimulus measures from the European Central Bank, cemented by
lower-than-forecast euro zone inflation data, although some
portfolio rebalancing at the end of the first quarter triggered
a late selloff.
Italian mid-tier banks Banco Popolare and Monte
Paschi were among top risers on the STOXX Europe 600
index, up 15.8 percent and 4.9 percent respectively,
compared with a 0.2 percent rise for the whole index.
Banco Popolare was boosted by reports that it had attracted
foreign investors to its capital increase, while Monte Paschi
saw two big Latin American funds take stakes ahead of the bank's
own cash call, a sign of growing confidence in the sector and in
the Italian economy from international investors.
"This round of capital increases is seen as a reinforcing
element for banks in the context of a more stable economic
environment," said Roberto Brasca, who manages a pan-European
equity fund for AcomeA and is overweight smaller Italian
"Once these banks have sorted themselves out in terms of
capital ratios, they can use their resources to lend."
A raft of price target upgrades by investment banks boosted
Italian lender Intesa Sanpaolo, which added 2.4 percent
to feature among top risers on the Euro STOXX 50 index
The euro zone blue chip index hit its highest level since
2008 at 3,185.68 points before succumbing to some quarter-end
profit taking to end 0.3 percent lower at 3,161.60 points. The
pan-European FTSEurofirst 300 index rose 0.1 percent to
1,333.55 points, taking its quarterly gains to 1.3 percent.
Italy's FTSE MIB, up 0.9 percent on Monday, has
outperformed both indexes so far this year as Italy emerges from
a deep two-year recession and the new government of Prime
Minister Matteo Renzi raises expectations of long-awaited
economic and political reforms.
Credit Suisse strategists expect further gains in Italian
stocks, saying the reforms should boost the economic recovery.
It noted credit conditions were easing and the shares'
valuations were still the cheapest in Europe.
Elsewhere, investors remained cautious on the last day of
the quarter and ahead of the European Central Bank's policy
meeting on Thursday and U.S. jobs data on Friday.
Data on Monday showed inflation in the euro zone fell to its
lowest level since 2009, fuelling speculation the ECB may sooner
or later take radical action such as the launch of quantitative
easing (QE) to tackle the threat of deflation.
"(The) chances of an additional rate cut and potentially QE
after that have clearly increased," said Philippe Gijsels, head
of research at BNP Paribas Fortis Global Markets in Brussels.
"This should be longer-term positive for European equities.
Today the end of quarter rebalancing is potentially clouding
Federal Reserve Chair Janet Yellen gave a strong defence of
the U.S. central bank's own stimulus policy on Monday, saying
its "extraordinary" commitment to boosting the economy,
especially the still struggling labour market, will be needed
for some time to come.
Quarter-end portfolio rebalancing boosted trading activity,
with volume on the STOXX 600 Europe index 40 percent higher than
the index's three-month average.
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 Atul Prakash in London and Blaise
Robinson in Paris; Editing by Alison Williams)