* FTSEurofirst 300 up 0.2 pct
* Portugal's top index rallies 1 percent after Thursday's slump
* BES down 2.6 pct after update but not seen affecting other banks
* FTSEurofirst set for worst weekly fall since April
By Francesco Canepa and Alistair Smout
LONDON/EDINBURGH, July 11 European shares rose on Friday as banks and southern European shares rallied once investors decided concern over Portugal's biggest listed bank was unlikely to spread.
Doubts about the financial health of the family who controls the bank, Banco Espirito Santo, had pulled Portugal's PSI share index to a nine-month low on Thursday. The index had rebounded 1 percent by 1109 GMT on Friday.
BES said late on Thursday losses associated with the founding family would not affect the bank. That calmed investor worries about a chain reaction hitting other banks, especially in the euro zone's periphery.
The fall in the previous session came after shares and bonds of Espirito Santo Financial Group (ESFG), the chief shareholder in BES, were suspended over "material difficulties" at parent firm ESI.
"While the bank has some exposure to the holding company, over a billion euros, it's very clear that they have enough excess capital, over 2 billion euros," said Veronika Pechlaner, who helps manage $13 billion of assets at Ashburton Investments. "So the systemic risk to the Portuguese banking system is limited, and that's what the market is telling you this morning."
Shares in BES opened for trading late on Friday morning and were down 2.6 percent lower in volatile trade, as investors factored in the bank's newly released estimates about its exposure to ESFG.
"(The announcement is) negative, as the overall direct and indirect exposure (including guarantees) is circa 850 million higher than the numbers mentioned before," analysts at Portugal's BPI wrote in a note.
"Still, we welcome the additional visibility provided with yesterday's release on the group's exposures which should help, though there was no clarification on whether there are provisions made on these exposures."
Portuguese lenders Banco BPI and Banif were up around 4 percent.
The pan-European FTSEurofirst 300 was up 0.2 percent to 1,352.77 points, although the index was still set for its worst weekly performance since April, down 2.9 percent.
Italy's FTSE MIB index, which had shed 1.8 percent on Thursday as disappointing economic data and the Portuguese selloff hit sentiment towards southern Europe as a whole, rebounded 1.1 percent, led by banks. Spain's Ibex rose 0.9 percent.
Concern over Banco Espirito Santo, as well as an enquiry by the United States into whether German lender Commerzbank broke sanctions restrictions, have hit the banks especially hard this week.
A 1.1 percent rally in euro zone banks saw the sector down only 4.4 percent for the week, having been down as much as 7.3 percent for the week on Thursday, at its lowest level this year.
Austrian banks have also been in focus in recent weeks because of their exposure to eastern Europe. But Erste rebounded from recent falls to rise 3.1 percent, helped by an upgrade from UBS.
Analysts at UBS said that the recent fall, nearly 20 percent since last week, "more than reflects the expected losses in problematic geographies," and upgraded the stock to "buy" from "neutral".
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up (Reporting By Francesco Canepa; Editing by Larry King)