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LONDON (Reuters) - European shares were trading higher late Thursday morning, with opening losses reversed on talk the Greek government might collapse, meaning there might be no referendum on its bailout and easing concerns about an imminent default.
The pan-European FTSEurofirst 300 .FTEU3 index of top shares was up 1.2 percent at 983.25 points at 1021 GMT (6:21 a.m. EDT), having bounced from a low at 956.24.
The bank sector .SX7P, the main focus earlier due to its sovereign debt exposure, was up 1.5 percent, while a Greek bank index .FTATBNK jumped 6.6 percent.
"People are thinking Greek Prime Minister George Papandreou's government falls and therefore the referendum is postponed. But it is obviously wishful thinking because it does not fix any issues," said a trader at a European investment bank.
"The referendum may be postponed, but it would be replaced by a general election, which would be a similar vote. The opposition party does not want to leave (the euro) but ... subject will come up in the general election and the people will be able to vote for someone who wants to leave the euro."
Papandreou will face a confidence vote in parliament on Friday, which could lead to an election if he loses.
The FTSEurofirst 300, up 14.6 percent since September on hopes euro zone leaders were coming together to form a solution to the region's crisis, is down 4.2 percent since Friday when fresh worries about the debt crisis surfaced.
The Euro STOXX 50 volatility index .V2TX, a key gauge of investor 'fear' in Europe fell 0.8 percent, but is still up 34 percent for the week -- the higher the volatility index, the lower investor appetite for risk.
"We are trying to avoid exposure to domestic Europe. We were concerned about European growth anyway but now it is going to be absolutely dreadful," said Andrea Williams, who manages $2.1 billion in assets for Royal London Asset Management. "We are trying to avoid anything with over exposure to Italy and Spain."
Data from Societe Generale Cross Asset Research team showed global equities saw outflows over the past four weeks, with U.S. and emerging stock markets the most affected while in Europe, net flows reached breakeven.
Earnings news, gave a more mixed picture of the global environment. Steelmaker ArcelorMittal ISPA.AS fell 1.5 percent to feature among the worst performers after it posted third-quarter results below expectations.
Dutch lender ING ING.AS gained 6.4 percent to feature in the best performers list on the FTSEurofirst 300 index after third-quarter results beat market expectations.
Investors will look later at the European Central Bank interest rate policy meeting, with ECB president Mario Draghi expected to it play safe at his first policy meeting rather than ramping up a response to the region's crisis.
Additional reporting by Simon Jessop; Editing by Dan Lalor