* Investors expect more ECB stimulus on Thursday
* Telecom Italia, Mediaset up on M&A prospects
* Credit Agricole rises on cost-cutting plans
* BMW falls after dividend disappointment (Adds closing prices)
By Danilo Masoni and Sudip Kar-Gupta
MILAN/LONDON, March 9 (Reuters) - European shares rose on Wednesday helped by gains in Italy's Telecom Italia and Mediaset on prospects of possible M&A deals with French rivals.
The pan-European FTSEurofirst 300 index, which fell 0.9 percent on Tuesday to around its lowest level in a week, rose 0.5 percent at 1,335.4 points, while euro zone's blue-chip Euro STOXX 50 index rose by the same amount.
The FTSEurofirst remains down by around 7 percent since the start of 2016, with stock markets having been hit by signs of a slowdown in China, the world's second-biggest economy, weaker euro zone data and concerns over Europe's banking sector.
But some investors said sentiment was helped by expectations of more monetary stimulus measures from the ECB on Thursday.
The ECB is expected to make a 10 basis-point cut to its deposit rate, taking it deeper into negative territory, while some type of adjustment of the central bank's 1.5 trillion euro asset purchase programme is also expected by markets.
Telecom Italia was one of the best-performing stocks in Europe, rising as much as 5.7 percent after comments by Italian and French leaders that they wanted to create major companies that can compete in Europe.
The comments followed remarks by the head of French telecoms company Orange that he might look into a possible merger deal with Telecom Italia if its top shareholder Vivendi invited him to.
Mediaset rose 6.8 percent after sources told Reuters said the TV company controlled by former Italian prime minister Silvio Berlusconi was in talks to sell its pay-TV business to Vivendi. Vivendi was up 1.3 percent and Orange up 1.5 percent.
The bank sector index, which has been the worst sectoral performer so far this year on concerns ultra low interest rates could hit lenders' profitability while growth remains sluggish, edged up 0.2 percent.
Some investors including Edmond de Rothschild AM fund manager Guillaume Rigeade expected the ECB to unveil pro-bank measures on Thursday to prevent rate cuts from eating further into their profitability.
"The ECB has fostered a climate of confidence and has the means to stop any new banking crisis degenerating into systemic territory," he said in a note.
Credit Agricole rose 1.2 percent after the French bank pledged to boost cost savings by 2019, while Italy's Intesa Sanpaolo and Spain's Bankiter also both rose by more than 1 percent.
Earlier this week, Anthilia Capital Partners fund manager Giuseppe Sersale said he saw a 60 percent chance of a new bank fund scheme being introduced and just a 25 percent chance the ECB could broaden its asset purchase programme to bank bonds.
German carmaker BMW fell 1.9 percent after its dividend proposal disappointed investors, outweighing a better than expected operating profit.
Today's European research round-up (Editing by Ralph Boulton)