* FTSEurofirst 300 and Euro STOXX 50 up 0.1 pct
* Banks rally after regulators ease leverage rule
* Investors shift from Germany to periphery -SG
* Earnings to rise 14 pct this year -Goldman
By Blaise Robinson
PARIS, Jan 13 European stocks edged up on Monday thanks to a rally in banking shares after regulators agreed to water down the way a new leverage ratio for lenders is compiled.
Deutsche Bank surged 3.6 percent, Barclays added 3.1 percent and UBS rose 2.4 percent.
On Sunday, global banking regulators said they would ease the way the new bank rule, which is meant to rein in risky balance sheets from 2018, is compiled.
The easing of the rule is the latest sign of how regulators have become more willing to accommodate banks as the focus switches to helping economies recover.
The STOXX bank index was up 1.2 percent, extending its gains so far this year to 5.5 percent.
"This is good news because it will give banks some breathing space. There had been concerns that high ratios would hit the banks' profitability," said David Thebault, head of quantitative sales trading at Global Equities in Paris.
"It should also remove the distortion between the way U.S. and European lenders calculate their ratios, which should benefit European banks."
At 1155 GMT, the FTSEurofirst 300 index of top European shares was up 0.1 percent at 1,321.94 points, while the euro zone's blue-chip Euro STOXX 50 index was up 0.1 percent at 3,106.71 points, both hovering a few points below five-year highs hit recently.
Around Europe, the UK's FTSE 100 index was down 0.1 percent, Germany's DAX index was up 0.2 percent and France's CAC 40 was 0.1 percent higher.
Euro zone peripheral markets continued to outperform, with Spain's IBEX up 0.5 percent and Italy's FTSE MIB up 0.4 percent.
"There's been a switch in terms of investment flows in the past few months, with people getting out of German equities and into peripheral euro zone markets as the risk premiums continued to fall," said Roland Kaloyan, global asset allocation strategist at Societe Generale CIB.
"German equities have been a safe-haven during the euro zone debt crisis, but there are now doubts about the country's ability to maintain its strong economic pace. At the same time, investors are finding better opportunities in the euro zone periphery."
So far this year, the IBEX is up 4.3 percent, the MIB is up 3.4 percent and Portugal's PSI20 has surged 8.3 percent, outpacing the broad FTSEurofirst 300 which has gained just 0.4 percent.
Overall, European stocks have enjoyed massive investment inflows recently, especially from U.S. investors.
In 2013, European equities saw record net inflows of $16.3 billion from U.S.-based investors, and the inflows accelerated sharply in the last quarter of the year.
Goldman Sachs' chief global equity strategist Peter Oppenheimer said he sees scope for further inflows from U.S. investors while European corporate profits bounce back.
"We expect European earnings to grow by 14 percent in 2014 and 13 percent in 2015," he told a Goldman Sachs conference in London on Monday, reaffirming Goldman's 'overweight' position on the European banking sector.
"This is an area we think will continue to lead equity markets higher," Oppenheimer said.
Shares in PSA Peugeot Citroen featured among the top gainers, jumping 7 percent on media reports that the French car maker plans to build a fourth plant in China with its partner Dongfeng.
Traders said the rally was fuelled in part by short covering. Shares in the struggling automaker are among the most shorted across Europe, with 16 percent of the company's shares out on loan, according to data from Markit.
Telecom equipment maker Alcatel-Lucent added 4.6 percent, propelled by mounting expectations of a sale of its business unit which sells telecoms equipment and services to corporations.
Today's European research round-up