* FTSEurofirst 300 up 0.5 percent
* Banks lead; RBS aided by UBS upgrade
By Tricia Wright
LONDON, Nov 27 European shares rose on Tuesday
after international lenders agreed on lowering Greece's debt,
paving the way for the next disbursement of urgently needed aid.
The accord, reached by the lenders late Monday, will cut
Greek debt by 40 billion euros, bringing it down to a more
manageable 124 percent of gross domestic product by 2020.
The FTSEurofirst 300 was 0.5 percent higher at
1,109.78 by 1246 GMT, after a 0.5 percent decline on Monday
ended a five-session winning streak.
Thin volume on the index, at only a third of its 90-day
daily average, exaggerated the market's move. Traders said while
the Greek deal came as a relief, it was largely expected -- and
it's probably just a short-term fix.
"I think the time bomb has temporarily been defused, but
it's still not completely inactive," Patrick Moonen, a senior
strategist at ING in Amsterdam, said.
"Systemic risks for the euro zone are gradually coming down,
meaning that part of the equation is normalizing - and that may
lead to higher valuations for European equities, not only in an
absolute sense but also relative to U.S. equities."
With the systemic fears abating in Europe, the gap between
price-to-earnings ratios of U.S. and European equities tumbled
earlier this month to the lowest point in more than six years,
signalling a strong reversal in investors' perception of both
According to Thomson Reuters Datastream, the broad STOXX 600
trades at 10.97 times its 12-month forward earnings,
versus a price-to-earnings ratio of 12.13 for Wall Street's S&P
The gap of 1.16 between the two ratios is the smallest since
May 2006, before the start of the financial crisis in 2007, and
well below a 10-year average of 1.93. The gap was 2.6 in
September 2011, the depths of the euro zone debt crisis, when
the valuation of European stocks fell below the valuation of
equities in emerging markets.
Banks were the top risers in a broad-based rally as
the sector drew strength from the Greek debt deal news.
A near 4 percent advance put Royal Bank of Scotland
at the second-top spot on the FTSEurofirst 300 leader board,
with the part-state-owned lender also boosted by a UBS upgrade
With the Greek problem smoothed over for now, the focus
shifts to the threat of the U.S. 'fiscal cliff' -- a set of
automatic tax increases and government spending cuts set to come
into force in January. Some investors, however, played down the
"It will be somewhat of a headwind but I don't think it will
derail the U.S. recovery in its totality," said Paras Anand,
head of European equities at Fidelity Worldwide Investment,
which has 143.7 billion pounds ($230.3 billion) assets under
"The market tends to react to surprises ... It's generally
something we haven't thought of that surprises us, rather than
something like this, which has been coming down the track for so