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European shares snap losing run; Burberry lifts luxury stocks

* FTSEurofirst 300 up 0.8 pct, Euro STOXX 50 up 1.2 pct

* Euro STOXX 50 closes above 50-day moving average

* Burberry's reassures luxury sector

By Blaise Robinson

PARIS, Oct 11 (Reuters) - European stocks rallied on Thursday after a drop in U.S. jobless claims while Spain's credit downgrade raised expectations that Madrid would soon request a bailout.

The FTSEurofirst 300

index of top European shares closed 0.8 percent higher at 1,098.80 points, snapping a three-day losing streak during which the index had lost 1.9 percent.

"We're buying the dips, adding beta in portfolios. The overall newsflow isn't too bad, and we've got profit warnings already so expectations for the upcoming earnings season are not very high," Talence Gestion fund manager Alexandre Le Drogoff said.

Luxury stocks paced the gains as reassuring comments from Burberry

on sales trends, a month after a profit warning, helped the sector reverse a portion of its month-long slide, with traders also mentioning short covering.

Burberry rose 13 percent, Louis Vuitton owner LVMH

added 3.8 percent and Swiss watch maker Richemont

gained 4.5 percent.

There was also reassurance from the U.S. where data showed initial U.S. jobless claims fell to the lowest level in more than four and a half years.

In the euro zone, investors saw the widely expected downgrade of Spain's credit rating by Standard & Poor's as pushing the debt-stricken country one step closer to requesting a bailout and limiting contagion to other countries.

This sentiment was reflected in the results of Italy's 6-billion euro bond auction, which drew solid demand and with yields only marginally rising compared with a similar auction last month.

"Even as economic growth remains sluggish, we have the feeling that the safety nets put in place by the ECB will work, and it's a big relief. It basically brings back visibility," Talence's Le Drogoff said.

The European Central Bank has set up a bond-buying scheme that will help lower Spanish borrowing costs, but Spain must first sign up for a European rescue plan to trigger the bond buying programme.

Euro zone banks rallied strongly, with Societe Generale

up 4.9 percent, UniCredit up 3.9 percent and Commerzbank up 2.7 percent.

Around Europe, UK's FTSE 100 index

gained 0.9 percent, Germany's DAX index added 1.1 percent, and France's CAC 40 climbed 1.4 percent.

The euro zone's blue chip Euro STOXX 50

index

ended 1.2 percent higher at 2,487.08 points, crossing a key level, the 50-day moving average.

The index could rise to last Friday's high of 2,534 in the next few days, ING's senior technical analyst Roelof-Jan Van den Akker said.

Beyond that, a further push above 2,610 - a strong resistance corresponding to highs tested in March and September, would mark the start of a major rally, the chartist said.

(Reporting by Blaise Robinson; additional reporting by Francesco Canepa in London; Editing by Elaine Hardcastle)

((blaise.robinson@thomsonreuters.com)(+33.1.4949.5269)(Reuters

Messaging: blaise.robinson.thomsonreuters.com@reuters.net))

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