* STOXX flat, set for weekly gain
* Euro zone bank index hits 15-month high
* Autos lead sectoral fallers, utilities off lows
* Tullow Oil plunges on rights issue news (Adds details, updates prices)
By Danilo Masoni
MILAN, March 17 (Reuters) - European shares were little changed on Friday, weighed down by weaker auto and utilities stocks, but euro zone banks spiked to a fresh 15-month high after a European Central Bank policymaker rekindled talk of a possible rate hike.
Ewald Nowotny said the ECB would decide at a later date whether to raise interest rates before or after ending its bond purchase programme, pushing euro zone government bond yields higher.
The Austrian central bank governor said the ECB could hike its below-zero remuneration of bank deposits before the main rates at which it lends to banks.
Traders said his comments sparked an early rally in bank stocks but the sector turned lower later. The STOXX 600 was nevertheless on track to end the week with a gain of around 1.2 percent.
Money markets showed at one point an 80 percent chance the ECB would lift its deposit rate in December, up from 60 percent a week ago.
Rabobank analysts said Nowotny’s comments had been over-interpreted, even though they could not rule out the possibility of the ECB tightening policy before ending its asset-buying.
The euro zone bank index rose as much as 1.4 percent before paring gains and was up 0.1 percent at 1510 GMT, supported by gains in Germany’s Commerzbank, up 2 percent, France’s Societe Generale and Spain’s BBVA , both up more than 0.5 percent.
Europe’s broader bank index reversed course to fall 0.5 percent, weighed down by Nordea Bank going ex dividend. In spite of the volatility some investors were upbeat about prospects for the sector, whose margins have been squeezed by ultra-easy central bank policy.
“I think Nowotny and a lot of the regulators and central bankers realise that negative interest rates have been a disaster for the economy and they’re going to get more positive. If interest start moving up in Europe I think this trade (bank stocks) has got some legs,” said David Hussey, head of European equities at Manulife Asset Management in London.
“There is a good short-term trade in banks and there is a medium- to long-term buy case for European financials generally as regulation and the economy improves,” he added.
Utilities, which tend to underperform when rates and yields rise because that makes the dividend-paying, debt-burdened sector less attractive, fell 0.1 percent but were off earlier lows, while autos dropped 0.5 percent, the biggest sectoral faller in Europe.
Manulife’s Hussey said utilities were a difficult industry to be invested in because of their high debt and threat from renewables energy.
Biggest drag on utilities was Italy’s Enel, whose shares fell 1.7 percent in spite of a proposed increase in its annual dividend and after its CEO Francesco Starace said any major deals in the European industry would have to wait until after elections this year in France and Germany.
Top fallers in the auto sector were German carmakers Volkswagen, Porsche and BMW, down between 0.8 and 1.5 percent.
Elsewhere, Tullow Oil plunged 15.8 percent, the top faller on the STOXX 600 index, after the British oil services company announced a 607 million pound share sale to reduce its debt.
But London-focused housebuilder Berkeley Group rose 5.7 percent to its highest level since Britain voted to leave the European Union, as investors cheered full-year forecasts at the top end of market estimates.
German airport operator Fraport rose 3.5 percent, also boosted by a well-received 2017 guidance. (Reporting by Danilo Masoni; Editing by Jon Boyle)