* Strong momentum in periphery markets seen continuing
* FTSEurofirst 300 up 0.3 pct, Euro STOXX 50 up 0.6 pct
* Investors expect dovish tone from ECB
* Oil services rebound as TGS outlook reassures
By Blaise Robinson
PARIS, Jan 9 (Reuters) - Investors bought peripheral euro zone stocks on Thursday, pushing bourses in Madrid, Milan and Lisbon to outperform northern peers 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 later in the day.
At 1053 GMT, the FTSEurofirst 300 index of top European shares was up 0.3 percent at 1,325.59 points, while the euro zone’s blue-chip Euro STOXX 50 index was up 0.6 percent at 3,128.54 points, with both indexes trading at levels not seen in more than five years.
The positive trend was stronger in the euro zone periphery. Spain’s IBEX, Italy’s FTSE MIB and Ireland’s ISEQ rose 1.1-1.4 percent, while Portugal’s PSI 20 added to recent sharp gains, up 0.5 percent.
“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 seen this week for Ireland’s first bond sale since it exited its EU/IMF bailout has helped push down euro zone government bond yields and lifted expectations that Portugal will be able to exit its EU/IMF bailout programme this year as planned.
Elsewhere in Europe, Britain’s FTSE 100 index was up 0.3 percent, Germany’s DAX index up 0.4 percent, and France’s CAC 40 up 0.3 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 for the year - the FTSE 100 was down 0.4 percent year-to-date, the DAX down 0.6 percent, and the CAC 40 down 0.8 percent.
But the IBEX was up 3.4 percent, the MIB up 2.5 percent, and the PSI 20 up 7.6 percent.
But despite sharp gains in the past six months, southern European bourses are still reeling from the euro zone debt crisis. Germany’s DAX trades near record highs, but Madrid’s IBEX would still need to rally 55 percent to reach 2007 levels. Milan’s MIB would need to surge 126 percent.
Euro zone banking stocks led the gains on Thursday, with Banco Popolare up 5 percent and UBI Banca up 3.5 percent, a rally in part fuelled by expectations of a dovish stance by the European Central Bank at its policy meeting on Thursday.
The ECB is set to keep interest rates on hold, although the bank’s 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.”
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.
Bucking the trend on Thursday, 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.