* FTSEurofirst 300 ends up 1.3 pct
* Bank sector leads way; biggest 1-day gain since Jan. 12
* Eyes on euro zone leaders' meeting on Thursday
By Simon Jessop
LONDON, July 20 (Reuters) - European shares posted a second day of gains on Wednesday buoyed by strong corporate earnings and on hopes sovereign debt deals would be reached on both sides of the Atlantic.
Fears political wrangling could see the U.S. default, and that core Europe could be dragged further into that region's sovereign debt crisis have weighed so much that even a small amount of good news on both fronts was boosting shares, analysts said.
Banks led the rise for a second day, on a report the euro zone bailout fund could be used to buy secondary market bonds and extend credit to in-need countries. Dexia was the top gainer, up 8.6 percent.
Dexia and peers such as Intesa Sanpaolo , up 6.6 percent, and Commerzbank , up 6.3 percent, helped the STOXX Europe 600 Banks Index to its best one-day gain since Jan. 12.
Banks contributed around a third of the FTSEurofirst 300's 1.3 percent rise to 1,091.11 points.
News of a plan by a group of U.S. senators, dubbed the Gang of Six, to revive stalled debt talks and avert a default, was also supportive, analysts said.
Both bits of news provided some support after the recent selloff, Ian Richards, head of European equity strategy at Royal Bank of Scotland, said.
Richards said investors remained cautious given the many "false dawns" in dealing with the crisis, ahead of a meeting of euro zone leaders on Thursday,
Analysts at Nomura were even more sceptical in a note. They expect the summit to focus on a second Greek bailout rather than "creating a broad-based solution to the Eurozone debt crisis".
They added the crisis had "moved well beyond the point where a quick fix to Greece's financing needs will be sufficient for broader stability".
The increase in investor risk appetite was reflected in a 4.7 percent fall in the Euro STOXX Volatility Index , although it remains at the higher end of its four-month range.
Lack of macro clarity, including the debt concerns, had "frozen" investor sentiment in July, Bank of America Merrill Lynch said in a global research report.
Fund managers surveyed in the report were consensus overweight on equities, commodities, technology and energy, underweight bonds, banks and utilities. They want to "avoid Europe, banks and indebted assets" but are more sanguine on growth, China and commodities, the report said.
Nick Williams, manager of the 430 million pound ($694 million) Baring Europe Select Fund, said he was not averse to buying into Greece or other peripheral euro zone countries but would avoid firms reliant on domestic consumers.
The fund had one holding in Spain and none in Portugal although "we are looking", said Williams, who considers European equities "reasonably valued".
EARNINGS SUPPORT
While gains for banks and broad macroeconomic themes drove much of the day's move higher, some strong corporate earnings added weight to the move.
French power and transport engineering group Alstom rose 1.4 percent in volume almost three times the 30-day daily average, after it posted an increase in order intake and pointed to strong emerging market demand.
Finnish ship and power plant enginemaker Wartsila also gained after reporting increased orders, up 5.6 percent in volume almost double its 30-day daily average.
As with the previous session, however, not all companies could look forward to a positive outlook.
German chipmaker Infineon
($1 = 0.620 British Pounds)
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