* FTSEurofirst 300 up 0.3 pct, Euro STOXX 50 up 0.6 pct
* Strong demand seen for bank option calls
By Blaise Robinson
PARIS, Sept 26 (Reuters) - European stocks rose on Friday, shrugging off declines on Wall Street, with euro zone banks leading the gains on expectations they will be the big winners in the European Central Bank’s drive to stave off deflation.
Spain’s Banco Santander rose 0.8 percent, Italy’s Intesa SanPaolo gained 1.6 percent and BNP Paribas added 1 percent. The STOXX euro zone banking index gained 0.6 percent, the top sector across Europe.
Investors increasingly expect euro zone banking stocks to rally in coming months as the ECB steps up efforts to support the region’s economy. The central bank announced more stimulus measures earlier this month, including purchases of asset-backed debt, in addition cheap loans to banks announced earlier.
Societe Generale equity analysts recommend buying European banks set to benefit from the ECB’s latest measures. They also say the ECB’s asset-quality review - whose results are due next month - should give banks more visibility.
“It’s a theme that many clients want to play, but not necessarily directly with long positions on the cash market. There’s been a big rise in the open interest in calls on banking stocks in the past few months,” said Vincent Cassot, head of equity derivatives strategy at Societe Generale.
Demand was lower than expected last week for the ECB’s four-year loans to banks. But several investors say banks will wait for the asset-quality review to end before taking part in the ECB scheme. Another round of loans is due in early December.
At 1103 GMT, the FTSEurofirst 300 index of top European shares was up 0.3 percent at 1,376.99 points, shrugging off a slide on Wall Street on Thursday, where the S&P 500 sank 1.6 percent and the Nasdaq Composite shed 1.9 percent.
Gains in Europe were led by Milan’s FTSE MIB, up 0.8 percent, Paris’s CAC 40, up 0.7 percent and Madrid’s IBEX, up 0.6 percent.
London’s FTSE 100 and Frankfurt’s DAX underperformed, both rising 0.1 percent.
So far this year, the FTSEurofirst 300 is up 4.5 percent, with Italy’s MIB up 8.5 percent and Spain’s IBEX up 9.4 percent. Both the FTSE 100 and the DAX are down on the year, 1.6 percent and 0.4 percent lower respectively.
According to a Reuters poll published on Thursday, European shares are poised to add another 2 percent to this year’s gains, supported by the ECB’s ultra-loose monetary policy and a falling euro, which should boost company earnings. Italy’s MIB is likely to benefit the most, gaining an extra 6 percent before year-end.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today’s European research round-up
Editing by Larry King