European shares gain on improved German sentiment
* FTSEurofirst 300 up 0.3 percent
* A rise in German investor sentiment boost shares
* Whitbread, Metso up after earnings
* Banks lag on concerns over Italy
LONDON, Dec 11 (Reuters) - European shares rose on Tuesday, helped by news of a sharp rise in German investor sentiment and upbeat earnings reports, although banks lagged gains on concerns over political turmoil in Italy.
By 1119 GMT the FTSEurofirst 300 was up 3.45 points, or 0.3 percent at 1,137.98, and the euro zone blue chip index rallied 0.7 percent to hold above a major resistance level of 2,610.
"The negative drivers seem to be fading slowly, but surely because the central banks have taken very strong steps and we are beginning to see the pay off," Gerhard Schwarz, strategist at Baader Bank, said.
German analyst and investor sentiment rose sharply in December on the back of encouraging U.S. economic data, entering positive territory for the first time since May.
That helped Germany's DAX rise 0.5 percent to 7,569, although technical analysts said the index will face tough resistance when it tries to break above 7,600.
Interest in European equities was almost double that of the UK's FTSE 100 in percentage terms, with the euro zone's blue chip index and the FTSEurofirst 300 having traded around 30 percent of their 90-day daily average approaching midday.
Positive earnings reports from several European companies helped drive indexes higher too.
Whitbread was among the top gainers on the FTSEurofirst, up 3.5 percent after Britain's biggest hotel and coffee shop operator posted a rise in third quarter sales.
Finnish engineering group Metso rose 2 percent after it gave a stronger-than-expected outlook for next year.
France's GDF Suez rallied 6.7 percent after Exane BNP Paribas raised its recommendation on the utility to "outperform" on improving fundamentals.
That helped offset concerns over political instability in the euro zone after Italian Prime Minister Mario Monti announced at the weekend that he would step down after the 2013 budget.
Baader Bank's Schwarz said that while the news was mixed, the improvement in economic numbers contributed to the relief rally.
Spain's IBEX outperformed, up 0.9 percent, with traders citing a technical bounce back from Monday's falls.
"Yesterday the IBEX posted a so-called doji, or hammer formation, which is a typical reversal formation often followed in this case by some early follow-through buying," a London-based trader said.
There was also an expectation that parties involved in talks to avert the "fiscal cliff" of steep tax hikes and spending cuts set for the end of the year will reach some kind of deal.
"We think it's highly likely that a deal will be done, if not this year, then early next year," Goldman Sachs chief global equity strategist Peter Oppenheimer said.
A failure to agree terms in the United States could be catastrophic for the euro zone where estimates are for growth of just 0.1 percent in 2013, according the most recent Reuters poll.
Banks' exposure to European debt makes them vulnerable to further potential shocks from the crisis-hit euro zone and a downturn in the U.S. as they rebuild capital to buffer their balance sheets.
Belgian banking and insurance group KBC KBC.BR was down 6.7 percent after it said late on Monday it had raised roughly 1.25 billion euros ($1.6 billion) to shore up its balance sheet at the same time as paying back state aid to Belgium.
Heavyweights HSBC and Standard Chartered lagged gains after they agreed separate fines with U.S. regulators following investigations into their business activities.