* FTSEurofirst 300 up 0.9 pct after Cypriot bailout
* Euro STOXX 50 up 1.3 pct, seen at 2,750 by weekend -
* Euro zone banks rise 1.6 pct
By Francesco Canepa
LONDON, March 25 (Reuters) - European shares clawed back
most of last week's losses on Monday after Cyprus secured a
bailout deal to avert a collapse in its banking system and a
possible exit from the euro zone.
Early on Monday, Cyprus clinched a last-minute deal with
international lenders on a rescue without which the
Mediterranean island would have faced financial meltdown and
potentially been pushed out of the euro zone.
Francois Duhen, a strategist at CM-CIC Securities in Paris,
said the deal underpinned investor confidence that European
authorities are committed to saving the euro, but he cautioned
the bailout was not all good news for investors.
"It's good (the deal) is there," Duhen said. "It was
expected we would have a short-term fix (but) some long-term
worries about the balance between public debt and growth will
remain. It's underfinanced according to us."
He added a decision to make senior bondholders in Cypriot
banks take a hit sets a worrying precedent and may act as a drag
euro zone banking shares once the euphoria over the averted
danger wears out.
Euro zone banks, which own a large part of the region's
sovereign debt and would have suffered from the fallout of a
Cypriot default on the wholesale funding market, jumped 1.6
The euro zone Euro STOXX 50 index was up 34.6
points, or 1.3 percent, at 2,716.25 points by 1116 GMT,
recouping most of the 44.1 points dropped last week, its worst
fall since November.
Justin Haque, a pan-European broker at Hobart Capital
Markets, said the index was likely to rise back to its recent
high of 2,750 points before the Easter break starts on Friday as
fund managers squared positions into the end of the first
quarter, a practice known as window-dressing.
"This week is a short week and the end of the quarter so
there's going to be a massive amount of window dressing," Haque
"Long-only (funds) have to keep invested as they get paid on
the performance numbers as of Thursday and hedge funds just go
along with it."
The cost of insuring against swings in euro zone stocks, as
measured by the Euro STOXX 50 volatility index or
VSTOXX, fell 16.4 percent.
The VSTOXX, which gauges the cost of options on euro zone
blue chips and tends to move inversely to the Euro STOXX 50, was
down around 40 percent since the European Central Bank president
Mario Draghi pledged to save the euro in July 2012.
The Euro STOXX 50 was up 27 percent over the same period of
time and 3 percent since the turn of the year as investor
confidence in the euro zone grew.
Ebullient equity markets in the first two months of the year
helped Aberdeen Asset Management pull in 3.5 billion
pounds ($5.3 billion) of net new money, the company said on
Monday, sending its shares 4.3 percent higher.
Investors have been chasing higher returns on equities as
yields on debt fell as a result of bond-buying programmes by
central banks, especially the U.S. Federal Reserve and the ECB.
Annual returns on euro zone shares, as measured by their
dividend yield, were 8.7 percent higher than those offered by
Germany's 10-year bonds, Datastream data showed.
The pan-European FTSEurofirst 300 index rose 11
points, or 0.9 percent, to 1,200.63 points, also helped by some
revived mergers and acquisitions speculation.
Heavyweight telecoms group Vodafone was the single
biggest contributor to the index, adding 0.7 points, on renewed
chatter that the British firm could be working towards a deal to
either sell its 45 percent stake in Verizon Wireless in the
United States, or merge itself with the Wireless unit's
Finnish engineering company Metso Oyj topped the
FTSEurofirst 300, jumping 11 percent, after the group said it is
studying the possible spin-off of its pulp, paper and power unit
as it aims to boost growth by separating its businesses.
Turnover in the shares was nearly three times its full-day
average for the past 90 days.