* European shares pare gains after ECB
* Draghi Decides not to inject further liquidity into financial system
* FTSEurofirst 300 flat, Euro STOXX 50 up 0.3 pct
* Spain and Italy outperform for second day in a row
By Francesco Canepa
LONDON, March 6 (Reuters) - A rebound on European equity markets fizzled out on Thursday after the European Central Bank chose not take fresh action to inject liquidity into the region's financial system, disappointing some investors.
The pan-European FTSEurofirst 300 index gave up its earlier gains and was flat at 1,344.08 points in late session trading.
The euro zone's blue-chip Euro STOXX 50 index rose 0.3 percent to 3,144.75 points, but was also down from its earlier intraday high of 3,158.15 points.
The ECB kept interest rates on hold on Thursday but also failed to suspend weekly operations to soak up money it spent on sovereign bonds at the height of the euro zone debt crisis, in a process known as 'sterilisation'.
A suspension in the so-called sterilisation of the Securities Markets Programme (SMP) would have added around 175 billion euros ($240.4 billion) in liquidity to the market.
With inflation running in the ECB's "danger zone" below 1 percent - 0.8 percent at the last count - the ECB has discussed ending operations to drain funds from the financial system, a back door way of increasing liquidity.
"Disinflation is still a problem, and the market is a little bit concerned that Draghi does not appear to have changed his stance on that," said Hantec Markets analyst Richard Perry.
The Italian and Spanish stock markets, however, managed to outperform the flat performance elsewhere in Europe for a second consecutive day.
Italy's FTSE MIB equity index rose by 0.6 percent to 20,909.40 points, having briefly hit its highest level since June 2011, while Spain's IBEX rose 1 percent.
The Milan and Madrid markets were helped by gains in Italian and Spanish banks, which have risen on signs of an economic recovery in those countries, which were hit hard by the 2010-2012 euro zone's sovereign debt crisis.
A 9.8 percent surge in the shares of telecoms operator Orange also added the most points to the FTSEurofirst 300.
Orange reassured investors by maintaining its 2014 outlook and its goal of better margins and lower costs which should help stabilise its EBITDA (earnings before interest, tax, depreciation and amortisation).
"The 2014 outlook is bullish on EBITDA stabilisation," analysts at Jefferies wrote in a research note.