* Euro STOXX 50 up 0.2 pct; DAX flat
* Risks seen on the downside following the ECB
* Put/call ratio, volatility index signal cautiousness
* M&A speculation boosts Mediaset, S&N
By Blaise Robinson and Francesco Canepa
PARIS/LONDON, June 5 (Reuters) - Main euro zone equity indexes treaded water on Thursday ahead of a European Central Bank meeting which is expected to yield fresh measures to spur growth.
At its meeting on Thursday, the ECB is expected to impose negative interest rates on its overnight depositors, seeking to prompt banks to lend instead and to prevent the region from slipping into Japan-like deflation, and launch a long-term refinancing operation (LTRO) targeted at businesses.
The euro zone's Euro STOXX index was up by 0.3 percent at 329.87 points at 1111 GMT, while the blue-chip Euro STOXX 50 was up by 0.2 percent at 3,245.54 points and Germany's DAX flat.
After a 9 percent rise in euro zone blue chips since mid-March, a number of traders and fund managers warned of risks of a pull-back in stocks following the ECB announcement and press conference.
"Stocks seem capped at the moment, and risks are mostly on the downside if the ECB doesn't deliver. It's very difficult to predict what the new measures will be. It's best to be 'neutral' equities right now," said Arnaud Scarpaci, fund manager at Montaigne Capital, in Paris.
"The ECB will certainly announce something, but it might keep some ammunition for the coming months, and markets might be disappointed if the measures unveiled today are not strong enough."
The Euro STOXX 50 put/call ratio, one of Europe's widely-used gauges of investor sentiment, has recently risen, signalling that equity investors have been hedging their portfolio against a potential market correction following the ECB announcement.
The ratio - which measures the trading volume of "put" options versus "call" options on the Euro STOXX 50 has risen to 1.64, data from Thomson Reuters Datastream shows.
A ratio below 1 usually signals bullishness, while a ratio above 1.5 usually signals that investors are turning cautious, buying "puts" as a hedge for their equity portfolios in case of a market sell-off.
The Euro STOXX 50 Volatility index, known as the VSTOXX, has been sending a similar signal in the past few sessions. It has surged 10 percent in the past week, reflecting investors' appetite for portfolio protection despite the market's recent rally.
The VSTOXX, based on put and call options on Euro STOXX 50, is used to measure the cost of protecting stock holdings against market corrections as it usually moves in the opposite direction to cash equities.
"After two weeks of relative calm on the market, the stress is now rising. However, a narrow majority of market players are still buyers," said Guillaume Dumans, co-head of research firm 2Bremans.
The ECB moves were expected to benefit shares in the European periphery, where lending has been stagnating at best, and weaken the euro, helping exporters but harming companies which have a large part of their costs in dollars.
Among winners, strategists at UBS highlighted the aerospace and defence sector, for which the United States is a key export market, as well as carmakers such as Volkswagen, chemical companies including Wacker Chemie and publishers such as Wolters Kluwer.
Sectors such as airlines, which buy fuel in dollars and are net short of the greenback, however, are set to lose out if the euro weakens, the strategists warned.
"The key driver for European earnings, and therefore European equities, is the exchange rate," UBS's strategists said in a note.
"We expect the biggest impact on the equity market will likely come through a weaker euro ... and negative deposit rates."
Shares in Mediaset rose 3.5 percent on Thursday after reports that Telefonica would make an offer to buy the Italian broadcaster's stake in Spanish pay-TV group Digital Plus.
M&A speculation also boosted Smith & Nephew, up 4.7 percent following reports that U.S. medical device maker Medtronic is looking at a takeover of the London-based firm. Smith & Nephew declined to comment. (Editing by Pravin Char)