* FTSEurofirst 300 up 1.4 pct, Euro STOXX up 1.2 pct
* Indexes hit 2-month high
* EU deal seen as paving the way for more policy action
* Credit Agricole boosted by Emporiki sale talk
By Francesco Canepa
LONDON, July 2 (Reuters) - European equities climbed to a two-month closing high on Monday and looked poised to test new peaks in coming days as investors beefed up their anaemic holdings in anticipation of further policy action after a EU deal aimed at tackling the region’s crisis last week.
The FTSEurofirst 300 ended up 1.4 percent at 1,035.32 points, building on a 2.6 percent jump on Friday, when EU leaders unveiled a crisis-fighting agreement, which, among other measures, allows the euro zone bailout fund to inject cash into struggling banks.
The deal encouraged investors to come back into European shares after a 4.5 percent fall in the second quarter, which saw the region’s equity funds post their biggest outflow since 2008, according to EPFR data, on concerns about a sovereign and banking crisis in Spain and uncertainty about Greece’s permanence in the euro zone.
The EU agreement was also estimated to pave the way for monetary stimulus from the European Central Bank - expected to cut interest rates on Thursday - which had been reluctant to intervene unless governments took the lead in tackling the euro zone’s fiscal problems.
“The market will want to pressurise policy makers into providing more stimulus and into being much clearer about when European banks can be recapitalised and when there will be intervention in the sovereign bond market,” Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment, said.
“We’re in a bottoming out process...but I think there will be a lot of volatility over the next few months as the market keeps the pressure on.”
The Euro STOXX volatility index, which uses options on euro zone blue chips to gauge investor expectations of future share price swings, rose 0.2 percent to 24.99 points.
The Euro STOXX 50 index rose 1.2 percent to 2,292.08 and was positioned for further gains in the very short term as it extended a bullish trading pattern known as a flag, which could take it to test resistance levels at 2,325 points and 2,350 points.
“Thanks to a bullish continuation pattern in flag, a measured move up is likely,” Philippe Delabarre, an analyst at Trading Central, said. “Furthermore, prices are supported by the ascending 20-day simple moving average.”
Euro zone banks, which have direct exposure to the region’s debt crisis through their sovereign bond holdings, were among the best performers, rising 1.9 percent.
Credit Agricole was the biggest gainer on the FTSEurofirst 300, up 6.9 percent in volume nearly three times the average, helped by reports the French bank is in talks to sell all or part of its struggling Greek unit Emporiki Bank. .