* FTSEurofirst 300, Euro STOXX 50 up 0.1 pct
* Steelmakers boosted by UBS upgrade
By Francesco Canepa
LONDON, Aug 26 Euro zone shares steadied on Tuesday after their biggest daily rise in narly five months on the previous day, which had been fuelled by prospects of further stimulus measures from the European Central Bank (ECB).
Steelmakers ArcelorMittal, Salzgitter and Voestalpine outperformed broadly flat European bourses as analysts at UBS upgraded their shares to "buy" from "sell" in expectation that the trio will benefit from a turnaround in the sector.
Their stocks rose by between 2.3 percent and 5 percent.
At 1042 GMT the FTSEurofirst 300 index of top European shares was up 0.1 percent at 1,368.37 points. The UK market, shut on Monday for a public holiday, gained ground, with the FTSE 100 index up 0.3 percent.
The euro zone's blue-chip Euro STOXX 50 index was up 0.1 percent at 3,166.96 points after surging 2.2 percent on Monday, its biggest rise since early March, boosted by comments from ECB President Mario Draghi.
"Stocks are taking a breather following yesterday's acceleration. (But) the mood remains quite positive after Draghi's comments, which confirmed that the ECB is determined to fight deflation," Saxo Bank trader Pierre Martin said.
Speaking on Friday at a global central banking conference in the United States, Draghi said the ECB was prepared to respond with all its "available" tools should inflation drop further.
The remarks, which have sent the euro to a one-year low against the dollar, fuelled speculation that the ECB could embark on a large-scale asset-buying scheme known as quantitative easing, or QE, to pump cash into the financial system and revive inflation.
European stocks have surged since mid-2012, with the FTSEurofirst 300 gaining 45 percent in a rally sparked by comments from Draghi saying that the ECB would do whatever it takes to save the euro.
The rally lost steam in June, however, as investors worried about the impact from the crisis in Ukraine and sanctions against Russia, and after a batch of strong U.S. macroeconomic data increased speculation that the U.S. Federal Reserve could raise interest rates sooner than expected.
Expectations of fresh ECB stimulus also helped the market to take a French government reshuffle in its stride. Paris's CAC-40 index was up 0.2 percent on Tuesday after rising 2.1 percent the previous day.
France's Prime Minister Manuel Valls was expected to put together a new pro-reform government on Tuesday, having resigned the previous day after President Francois Hollande's eviction of rebel ministers who had opposed budgetary rigour.
"The visibility on what Mr Hollande has been willing to implement was getting weaker because of divergence within the government, so he has solved this issue," said François Duhen, director of dedicated research at CM-CIC Securities in Paris.
"I'd say it's more positive than negative if they manage to convince enough members of parliament. But if they cannot find a majority ... then we will head for significant trouble."
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 in Paris; Editing by David Goodman)
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