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Retail stocks lift European shares from Spain gloom

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* FTSEurofirst 300 up 0.5 pct, Euro STOXX 50 rises 0.4 pct

* Gains on Carrefour, Burberry, LVMH prop up equity markets

* S&P downgrade to Spain impacts sentiment

By Sudip Kar-Gupta

LONDON, Oct 11 (Reuters) - Major retail stocks led Europeanshares higher on Thursday after three days of losses, althoughtraders said a rating cut for Spain could peg back markets tothe tight trading range seen in the last month.

The FTSEurofirst 300 index rose 0.5 percent to1,093.58 points, while the euro zone Euro STOXX 50 index

also recovered from earlier losses to rise 0.4percent to 2,462.48 points.

Fears over Europe's sovereign debt crisis were highlightedwhen Standard & Poor's downgraded Spain late on Wednesday,adding to pressure on Madrid to seek a sovereign bailout.

The downgrade pushed up Spanish bond yields and those offellow euro zone struggler Italy, and Spain's IBEX stockmarket fell 0.4 percent.

Some investors shrugged off the S&P cut, saying they hadbeen factoring in such a move for some time, and that Europeanequities appeared attractively valued despite the tough climatefacing the region's companies.

"Yes, the earnings outlook is difficult, but the Europeanmarket does look very cheap," said Neil Wilkinson, Europeanequities fund manager at Royal London Asset Management.

According to Thomson Reuters Starmine data, companies in theEuropean STOXX index have an average price-to-earnings(P/E) ratio of 10.5 for 2013 - a cheaper rating than acorresponding 2013 P/E ratio for the U.S. S&P 500 index .^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^SPAIN DOWNGRADERatings overview:^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ BURBERRY PUSHES UP LUXURY GOODS STOCKS

French luxury goods group LVMH added the mostpoints to the FTSEurofirst 300, with LMVH rising 3 percent onthe back of a 8.6 percent gain at its British rival Burberry.

Burberry, whose shares slumped after a profit warning lastmonth, reported a rise in first-half underlying revenues.

"With a very strong retail space opening programme ahead,Burberry looks likely to deliver a solid performance for theyear as a whole," Mirabaud analyst Steve Clayton wrote in anote.

French supermarket retailer Carrefour also rose3.4 percent after reporting that sales in its core French marketwere improving, while its Brazil business remained strong.

The underlying economic uncertainty has meant many investorshave favoured "defensive" stocks - companies seen as the mostresilient to the economic slowdown and often with a large globalreach - to more "risky" sectors such as banks or miners.

Royal London Asset Management's Wilkinson said he wasrelatively "underweight" on financial stocks, preferring moredefensive plays.

Cyrille Urfer, head of asset allocation at Swiss bank Gonet,also preferred such "defensive" stocks, and northern Europeanequity markets over those in debt-ridden southern European.

"We are still avoiding southern European equities, we'resticking more to core European equity markets such as the UK,"said Urfer.

The FTSEurofirst 300 index is still up by around 8 percentsince late July, when European Central Bank head Mario Draghipledged to do "whatever it takes" to protect the euro from theeffects of the region's debt crisis.

But European stocks have failed to make much ground over thelast month, trading in a tight 100 point range and with theFTSEurofirst 300 falling from a year-high of 1,122.76 pointsreached in mid-September.

This has been due to uncertainty over when Spain may requestan eventual bailout package.

Adrian Slack, head of equities at Bastion Capital, expectedEuropean equity markets to be under pressure this month, addingthat the Euro STOXX 50 could fall to around 2,396 points, whileGermany's DAX could go down to the 7,151 point level.

(Reporting by Sudip Kar-Gupta; Editing by Catherine Evans)

((sudip.kargupta@thomsonreuters.com)(+44 207 542 9795)(ReutersMessaging: sudip.kargupta.thomsonreuters.com@reuters.net))

Keywords: MARKETS EUROPE STOCKS/MIDDAY