* Strong momentum in periphery markets seen continuing
* FTSEurofirst 300 up 0.3 pct, Euro STOXX 50 up 0.5 pct
* Investors expect dovish tone from ECB
* Oil services rebound as TGS outlook reassures
By Blaise Robinson and Atul Prakash
PARIS/LONDON, Jan 9 (Reuters) - Investors bought peripheral euro zone stocks on Thursday, with bourses in Madrid, Milan and Lisbon outperforming again as confidence grows in Southern Europe’s struggling economies.
Overall, pan-European indexes inched higher, although investors were reluctant to make big bets before a European Central Bank policy meeting.
At mid-morning, the FTSEurofirst 300 index of top European shares was up 0.2 percent at a 5-1/2 year high of 1,324.07 points, while the euro zone’s blue-chip Euro STOXX 50 index was up 0.5 percent at 3,124.10 points, a level not seen in five years.
The positive trend was even stronger in the euro zone periphery, with Spain’s IBEX and Italy’s FTSE MIB both up 0.7 percent and Portugal’s PSI 20 0.4 percent higher.
“The momentum is clearly in the peripheral markets, that’s where investment flows are going,” FXCM analyst Vincent Ganne said. “Investors are doing arbitrage between the core and the periphery, using pairs trade coupling a short position on the DAX or CAC for instance and a long position on the IBEX or MIB.”
Bumper demand for Ireland’s first bond sale since it exited its EU/IMF bailout helped push down euro zone government bond yields on Tuesday and lifted expectations that Portugal will be able to exit its EU/IMF bailout programme this year as planned.
Britain’s FTSE 100 index was up 0.3 percent, Germany’s DAX index up 0.4 percent, and France’s CAC 40 up 0.2 percent.
At the close on Wednesday after 2014’s first five full sessions - seen by some investors as a good barometer of the market trend - the FTSE 100 was down 0.4 percent, the DAX down 0.6 percent, and the CAC 40 down 0.8 percent. Meanwhile, the IBEX was up 3.4 percent and the MIB up 2.5 percent.
The ECB is set to keep interest rates on hold later on Thursday, although ECB President Mario Draghi is expected to remind markets that the bank will not tolerate inflation holding persistently in the “danger zone” below 1 percent.
“Bulls are hoping for a very dovish ECB (which) will have to start fighting deflation this year,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.
“Longer term, we expect more expansionary action from the ECB and that will be one of the major elements driving European stock market outperformance. However, in the short-run they may be a little bit disappointed as with a slightly weaker euro and much tighter peripheral spreads, the sense of urgency, to a large extent, has disappeared.”
Bucking the trend, British grocer WM Morrison featured among the top losers, down 5.6 percent after it posted a sharp fall in like-for-like sales over Christmas.
Shares in oil services companies rallied, bouncing back from recent sharp losses, after seismic surveyor TGS unveiled a reassuring revenue outlook which sent its shares up 14 percent. Petroleum Geo-Services was up 5 percent and CGG up 2.2 percent.