* STOXX 600 up 0.8 percent
* Banking stocks rally, broker upgrades also help
* Ubisoft retreats after convertible bond issue (Adds detail and quotes, updates prices)
By Kit Rees
LONDON, Sept 21 (Reuters) - European shares rose on Wednesday, buoyed by a rally in banks, after a policy overhaul at the Bank of Japan lifted risky assets globally.
The STOXX 600 index rose 0.8 percent, touching its highest level in 2 weeks after a rise in European banks.
Eurzone zone banks were up 2.4 percent, on track for their best day in one month with Natixis, Italian and Spanish lenders among the top risers.
Europe took its cue from Asian markets which welcomed the Bank of Japan's decision to adopt a target for long-term interest rates. Investors also awaited the U.S. Federal Reserve's decision on interest rates, which were expected to be left unchanged.
"Today's policy decision is marginally positive for bank stocks and other risk assets for the short-term as the bank refrained from cutting the short-term rate to a further negative level, but the sustainability of the risk asset rally is questionable. The BOJ's policy exhaustion is increasingly clear," Tomoya Masanao, Head of Portfolio Management Japan at PIMCO, said in a note.
Investors didn't expect the BOJ's actions to support banking stocks in the long-term, though.
"I don't think this really solves anything. It may be a stepping stone towards the adoption of fiscal policy, which I think is the right thing and I believe the market wants," James Helliwell, Head of Markets at the Lex van Dam Trading Academy, said.
"It may support banks and financials short-term, but I don't think anybody expects it is going to solve problems ... long-term for banking profitability, and ultimately affect the economy positively."
Barclays rose 3 percent on the back of an upgrade to a "buy" rating from HSBC, which said that the sale of the bank's non-core businesses would produce value for sharedholders, while investors were also too pessimistic on low interest rates.
J.P. Morgan's price target upgrade for Dutch bank ING Groep also helped lift the stock 3.2 percent.
"We remain constructive on Dutch banks, whose valuations at c.9% discount to the sector don't sufficiently reflect their earnings resilience, in our view," analysts at J.P. Morgan said in a note.
French tech firm Atos was among the top riser on the STOXX 600, gaining over 4 percent after a broker upgrade.
Among the fallers, however, Ubisoft declined 2.8 percent after launching a 400 million euro convertible bond. (Reporting by Kit Rees, Editing by Vikram Subhedar)