Banks lift European shares on Basel III report

* FTSEurofirst 300 up 0.7 pct

* Banks gain on report sector could evade part of Basel III

* U.S. data eyed for any slowdown; Fitch cuts Japan outlook

* For up-to-the-minute market news, click on [STXNEWS/EU]

By Harpreet Bhal

LONDON, May 27 (Reuters) - Gains in heavyweight banks lifted European stocks on Friday on a report that lenders could evade part of the Basel III capital requirements, while technical indicators pointed to further short-term gains for equities.

Banks <.SX7P> rose 1.1 percent after the Financial Times reported draft legislation could place a lighter burden than previously expected on the capital positions of European Union banks, and could allow lenders to count more of the capital in their insurance subsidiaries

"There is a big chance that they won't have to go out to shareholders to ask for more money and that is the main advantage because a capital increase will weigh on their stock prices," said Koen de Leus, strategist at KBC Securities.

"It's good for banks, but it's not good for regulation. In the long term it's not a good thing for financial stability."

French banks Societe Generale and BNP Paribas , which both have insurance arms, rose around 2 percent while peer Credit Agricole rose 3.4 percent, among the biggest gainers in Europe.

Kepler Capital Markets analyst Pierre Flabbee said less stringent Basel III rules could ease Agricole's capital needs by some 4 billion euros ($5.7 billion).

By 0854 GMT, the pan-European FTSEurofirst 300 <.FTEU3> index of top shares rose 0.7 percent to 1,134.44 points.

The index dropped 0.1 percent in the previous session but managed to stay above its 200-day moving average line at 1,116.01 -- a bullish trend which helped cement Friday's gains.

In a further positive sign, the index briefly rose above its 50-day moving average line for the first time in four sessions, indicating short-term positive momentum remained intact.

SHORT LIVED

Recent index falls had been overdone, said Markus Huber, senior trader at ETX Capital, prompting some bargain hunting.

He cautioned, however, that gains could be short-lived in the event of disappointing economic data from the United States due later in the session.

"We have more numbers from the U.S. this afternoon and if that confirms the view that the U.S. is slowing down then the market might turn," Huber said.

"U.S. stocks didn't close near their highs yesterday, therefore we have to see if the buying will really be followed through ... and if that doesn't happen, we could fall back fairly quickly."

Data on Thursday showed U.S. first-quarter economic growth was unrevised at 1.8 percent, against expectations of an upward revision, while applications for unemployment insurance rose unexpectedly in the latest week.

Highlighting further concerns about the pace of growth in the global economy, ratings agency Fitch revised its outlook for Japan to "negative" from "stable", putting some pressure on European stocks. [ID:nWLA1417]

Gains in heavyweight mining shares also helped underpin the equity market, as copper prices rose sharply on the back of a weak dollar following disappointing U.S. economic growth figures on Thursday.

The STOXX Europe 600 basic resources index <.SXPP> rose 1 percent, its fourth straight session of gains.

Luxury firm Burberry rose 2.7 percent, helped by a report in the Hong Kong Economic Journal that said the company intends to seek a listing in Hong Kong to tap the market in China. [ID:nL3E7GR060]

Within the sector, LVMH , Christian Dior and Richemont added 1.5 to 2.3 percent.

On the downside, Ageas dropped to a four-and-a-half month low after it said that it was prepared to pay up to 1 billion euros for a bond issued in 2001. (Editing by David Holmes) ($1=.7038 Euro)