* 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 onThursday after a drop in U.S. jobless claims while Spain'scredit downgrade raised expectations that Madrid would soonrequest a bailout.
The FTSEurofirst 300
index of top European sharesclosed 0.8 percent higher at 1,098.80 points, snapping athree-day losing streak during which the index had lost 1.9percent.
"We're buying the dips, adding beta in portfolios. Theoverall newsflow isn't too bad, and we've got profit warningsalready so expectations for the upcoming earnings season are notvery high," Talence Gestion fund manager Alexandre Le Drogoffsaid.
Luxury stocks paced the gains as reassuring comments fromBurberry
on sales trends, a month after a profitwarning, helped the sector reverse a portion of its month-longslide, 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 showedinitial U.S. jobless claims fell to the lowest level in morethan four and a half years.
In the euro zone, investors saw the widely expecteddowngrade of Spain's credit rating by Standard & Poor's aspushing the debt-stricken country one step closer to requestinga bailout and limiting contagion to other countries.
This sentiment was reflected in the results of Italy's6-billion euro bond auction, which drew solid demand and withyields only marginally rising compared with a similar auctionlast month.
"Even as economic growth remains sluggish, we have thefeeling 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 schemethat will help lower Spanish borrowing costs, but Spain mustfirst sign up for a European rescue plan to trigger the bondbuying programme.
Euro zone banks rallied strongly, with Societe Generale
up 4.9 percent, UniCreditup 3.9 percent andCommerzbankup 2.7 percent.
Around Europe, UK's FTSE 100 index
gained 0.9percent, Germany's DAX indexadded 1.1 percent, andFrance's CAC 40climbed 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 keylevel, the 50-day moving average.
The index could rise to last Friday's high of 2,534 in thenext few days, ING's senior technical analyst Roelof-Jan Van denAkker said.
Beyond that, a further push above 2,610 - a strongresistance 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 byFrancesco 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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