Italian banks and Mediaset boost European shares to 11-month high

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* STOXX Europe 600 index up 0.7 pct

* Italian banks among top gainers

* UniCredit jumps on plan to raise capital

By Atul Prakash

LONDON, Dec 13 (Reuters) - Italian banks surged in choppy trading on Tuesday, supported by Unicredit’s latest efforts to bolster its balance sheet and a surge in Mediaset on takeover speculation.

Mediaset shares jumped 22 percent after French media group Vivendi said it owned a 3 percent stake in the Italian broadcaster and planned to raise that to as much as 20 percent, fuelling expectations of a takeover bid.

The pan-European STOXX 600 index climbed to a new 11-month high and was last quoted 0.7 percent higher after opening slightly lower.

Italy’s banking index rose more than 3 percent, helped by a 7 percent rise in UniCredit after it unveiled plans to raise 13 billion euros ($13.8 billion) in the country’s biggest share issue. The aim is to shore up its balance sheet and distance itself from Italy’s broader banking crisis.

“It’s a hard medicine to swallow, but UniCredit’s move to raise billions of euros and a restructuring programme would put the bank in a much better shape,” said Koen De Leus, chief economist at BNP Paribas Fortis.

“Overall sentiment has improved on expectations that the new government could support the banking sector and help Monte dei Paschi di Siena to raise capital from private investors. I hope they will not waste this crisis and clean up their non-performing loans.”

UniCredit’s move came at a difficult time, with Monte dei Paschi di Siena at risk of failure, a new government just installed in Rome and early elections expected next year.

However, Monte dei Paschi shares were up 2 percent. A Treasury source said on Monday that Italy was ready to pump capital into the bank if it failed to get the 5 billion euros ($5.3 billion) it needed to remain in business from private investors.

Italian banks had surged on short covering after Prime Minister Matteo Renzi announced he would resign after a referendum defeat on Dec. 4. The banking index is up nearly 21 percent since hitting a low on Dec. 5, boosted by hopes a new government and the European Central Bank will help the country’s ailing lenders.

Investors are also keeping an eye on the Federal Reserve’s two-day policy meeting from Tuesday. It is widely expected to hike rates for the first time in 2016, with markets pricing in a nearly 100 percent chance of a quarter percentage point rise.

What matters most to investors is the Fed’s statement and economic projections, which will be examined for any signs of reaction to Donald Trump’s surprise victory in the Nov. 8 U.S. presidential election.

Elsewhere, insurer and asset manager Standard Life fell 1.4 percent after Deutsche Bank cut its rating on the stock to “hold” from “buy” and reduced its price target by 5 percent, citing pressure on the company’s margins. (Editing by Mark Trevelyan)