March 14, 2012 / 9:33 AM / 5 years ago

Banks lead Europe shares up as US says industry OK

* FTSEurofirst up 0.8 pct

* Index hits new 33-week high

* Banks lead gainers after positive U.S. stress tests

By Francesco Canepa

LONDON, March 14 (Reuters) - European shares rose early on Wednesday to reach fresh 33-week highs, led by financials as the U.S. Federal Reserve improved its economic outlook for the world's largest economy and said most U.S. banks had passed its stress tests.

European banks climbed 2 percent after the Fed's conservative stress tests showed most lenders achieved high grades, paving the way for higher payouts and reassuring investors about the solidity of the global banking system.

Further contributing to the positive sentiment, the Fed said it now expected "moderate" economic growth in Europe's largest export market in the coming quarters, improving previous expectations for a "modest" increase.

European banks with large U.S. operations were among top gainers, with Barclays and Deutsche Bank up 4 percent and 3.2 percent, respectively.

"U.S. stress tests could be said to show that the worst is over for the American financial system and many banks can now offer a decent dividend and return cash to shareholders," Darren Sinden, senior sales trader at Silverwind Securities, said.

Italy's third-largest lender, Monte dei Paschi di Siena , rose 4 percent having already traded the equivalent of its full-day 90-day volume average as the market welcomed reports that the main foundation shareholder could sell its 15.5 stake in the bank to private investors, making a market placement remote.

The euro zone blue chip Euro Stoxx 50 index rose 1 percent to 2,581.98 points, supported by technical momentum as it cemented a move above a technical resistance at 2,550 points - 2,555 points.

The broader FTSEurofirst 300 index of top European shares was 0.8 percent higher at 1,103.53 points, hitting a new seven-and-a-half-month high.

Traders said the rally in Europe was in part taking cue from strong advances on Wall Street, which posted its best day this year on Tuesday.

British insurer Legal & General was among top gainers, rising over 5 percent in volume 95 percent of the average after reporting forecast-busting full-year profits and hiking its dividend by more than a third.

"L&G has reported a very good set of FY results this morning with higher than expected cash and dividend the main highlights," BofA Merrill Lynch said in a note, repeating its "buy" rating on the stock.

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