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UPDATE 2-European stocks close tad higher, led by gains in banks, energy

Sruthi Shankar and Medha Singh

* Healthcare, utilities, food and beverages fall

* Banks log best 5-day run since December 2016

* Ferrari drops in profit-taking after new models unveiled (Updates to close)

Sept 10 (Reuters) - A rally in banking shares and other recently battered sectors such as oil and gas and automakers kept the mood buoyant in European stock markets on Monday, as investors speculated over policy measures by the European Central Bank later this week.

The pan-European STOXX 600 index, after opening in the red, closed 0.1% higher as the banking index climbed for a fifth session, its best five-day rally since December 2016.

Oil and gas, basic resources and automakers - among the worst-hit sectors this year on worries over the U.S.-China trade war, Brexit and a global slowdown - gained between 0.2% and 2%.

Investors seeking value were out in full force, buying stocks that have lagged the broader markets this year and driving a turnaround in early losses.

The Austrian stock index, one of the worst performers of 2019, rose more than 1%, while Swiss shares, a top performer, dropped 0.4%.

"Buying the winners and selling the losers has worked really well since the middle of February, but we think performance has been too good," Jefferies strategists wrote in a note.

"We think rotating back to valuations mattering makes sense and we have started to see this happen here in September."

Banks outshone amid a recovery for euro zone debt yields as investors tempered hopes of aggressive easing measures from the ECB even as the central bank is expected to cut its deposit rate for the first time since 2016 and restart an asset purchase programme.

"There seems to be anxiety in the market over how much they had already priced in and maybe uncertainty over whether the ECB will deliver to that extent," said Bas van Geffen, an ECB quantitative analyst at Rabobank.

The broad rally in euro zone banks helped Spanish lenders such as Caixabank, Banco Sabadell and Bankia overcome early weakness after the European Court of Justice said the IRPH mortgage price index used during Spain's property crisis could be considered abusive, potentially causing banks to pay compensation.

Meanwhile, defensive sectors such as healthcare, utilities and food and beverages were among the biggest losers. The stocks had been in high demand over the past three months amid trade and growth uncertainties.

After a turbulent August, stocks globally were on a firmer footing amid expectations of stimulus from major central banks. Those hopes were further underpinned by weak factory data from China showing prices shrank in August at their fastest pace in three years.

Technology stocks, a key growth sector, fell about 1%, tracking their U.S. counterparts lower.

JD Sports topped the STOXX 600 after it reported higher first-half pretax profit, helped by more demand for gym apparel and premium-branded fashion.

Shares in French utility EDF sank 7% after warning it had discovered problems with the weldings and other components in some of its nuclear reactors, raising fears about potential closure.

Italian shares, meanwhile, dropped 0.6% after a report the new ruling coalition government plans to raise the 2020 budget deficit target to around 2.3% of economic output, bringing it very close to the 2.4% level that almost triggered a European Union disciplinary procedure against Italy this year.

Ferrari NV's shares dropped 6% to the bottom of the FTSE MIB index, with investors booking profits after the automaker unveiled two new cars on Monday. The stock is still up 59% this year.

(Reporting by Sruthi Shankar and Medha Singh in Bengaluru; additional reporting by Thyagaraju Adinarayan and Danilo Masoni; Editing by Bernadette Baum)