* FTSEurofirst 300 up 2 pct, reverses early losses
* Euro STOXX 50 breaks above first key retracement level
* Julius Baer analyst says stock markets not at bottom yet
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By Harro ten Wolde and Blaise Robinson
FRANKFURT/PARIS, Aug 12 (Reuters) - European stocks bounced on Friday, prompted by a short-selling ban on financial shares by France, Italy, Spain and Belgium and data from the European Central Bank's overnight loan facility.
At 1134 GMT, the FTSEurofirst 300 index of top European shares was up 2 percent at 953.51 points, after surging as much as 2.7 percent earlier in the session, recovering from two-year lows earlier in the week.
"Very calm trading so far. Seems investors and traders are trying not to let it mess up their weekend again," said Stefan de Schutter, trader at Frankfurt-based Alpha Trading, adding that he saw some buying into banks this morning. "The big run in banks and financials came Thursday afternoon," he said.
The STOXX bank index was up 2.7 percent, with Dexia up 11 percent, Banca Popolare dell'Emilia Romagna up 8 percent, KBC Groep gaining 7 percent and Mediobanca up 6 percent.
Banking shares extended gains after the ECB said use of its overnight loan facility by banks totalled 227 million euros, much lower than the 4 billion borrowed the previous night, easing fears that a number of banks were facing liquidity problems.
"This indicator is often regarded as a measure of bank risk aversion. (Today's data) do not indicate any hard funding crisis," a Paris-based trader said.
The recent market rout has knocked banks' valuation ratios to levels not seen since the heat of the financial crisis in March 2009. The STOXX banking index is trading at 7.1 times 12-month forward earnings, well below a 10-year average of 10.9, according to Thomson Reuters Datastream.
Before Friday's rally, the forward P/E ratio for Dexia had fallen to 3.7, while Credit Agricole traded at a P/E of 3.3 and Societe Generale at 3.7.
SHORT EFFECT
The Euro STOXX 50 index was up 2 percent at 2,259.48 points, breaking above the first key retracement level of its recent slump, the 23.6 percent Fibonacci retracement, at 2,246.86 points, sending a bullish signal.
The next resistance is at 2,351.91 points, the 38.2 percent retracement. Some say, however, that stock markets may not yet have hit bottom.
"At the moment we see retail investors entering the market, the so called 'hobby speculators'. That is a hint the sell-off has not ended yet. Only when nobody enters the market -- not even retail investors -- has it found its bottom," said Christian Gattiker, head of equity research at Julius Baer.
European Securities and Markets Authority (EMSA) said in a statement late on Thursday that France, Italy, Spain and Belgium imposed a ban short-selling financial shares that came into effect on Friday but will vary in detail from country to country.
"I don't expect a fundamental long-term effect," said a Frankfurt-based derivatives trader. "In the short-term the ban should prevent speculative trading, as until yesterday almost every rumour was used as an excuse for a sell-off," he said, adding that he did not see any extra short-selling activity on the German market.
"It already looks like the short sellers are moving to the CDS market," a London-based fund manager said.
"The short-selling ban is a risky move," a hedge fund manager said. "At best it is a palliative measure to remove some of the downward momentum caused by hedge fund investors and others. But hedge funds are not the only ones betting against the banks. An important constituency are banks themselves," he added. (Reporting by Harro ten Wolde in Frankfurt and Blaise Robinson in Paris, additional reporting by Edward Taylor and Kirsti Knolle in Frankfurt; Editing by Will Waterman)
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