KPN leads as European shares rise for 3rd session

* FTSEurofirst 300 up 0.3 pct as European leaders seek deal

* KPN tops index on M&A speculation

* Euro STOXX 50 up 0.4 pct to 2,519.68

* Index to test support at 2,400 before rise above 2,600 in

Dec - SG

LONDON, Nov 21 (Reuters) - European stocks chalked up a

third straight session of gains on Wednesday as buyers snapped

up recent laggards and positioned for a positive outcome to

negotiations over aid to Greece.

Shares in telecoms group KPN bounced 6.8 percent

from a 10-year low in volume twice the 90-day average, boosted

by trader speculation about consolidation in the German telecoms

sector.

It was the top riser on the pan-European FTSEurofirst 300

index, which closed 0.3 percent higher at 1,097.43

points, albeit in thin volume of 82 percent the average as

Thursday's Thanksgiving market holiday in the United States

approached.

Stocks turned higher in mid-morning trade on signs

politicians were stepping up efforts to reach a deal to unlock

financial help for debt-laden Greece on Monday, after they

failed to do so on Tuesday.

"Our assumption over the next six months is, on any

significant pullback, to buy Europe," Bill O'Neill, chief

investment officer for Europe, the Middle East and Africa at

Merrill Lynch Wealth Management, said.

"I can see 12-15 percent total returns for European equities

next year, but that of course depends on nothing untoward

happening in the euro zone and the integration process

continuing."

O'Neill estimated cash injections by central banks, a

pick-up in global growth and more stability in the euro zone

would boost European equities in 2013 as investors switch out of

government and corporate bonds, where yields are falling.

The premium investors demand to hold equities over

investment grade credit, a measure of the relative

attractiveness of equities, is at a 25-year high of around 4

percent, according to Merrill Lynch data.

O'Neill recommended buying shares with a high level of

volatility, or beta, such as banks and focusing on stocks that

are offering cheap valuations in historical and relative terms,

a trading strategy known as value investing.

VOLATILITY FALLS

In a further sign of the improving market sentiment

surrounding the euro zone, the Euro STOXX 50 volatility index

, which measures option prices on euro zone blue chips,

fell 4.9 percent to a new eight-month low of 17.85.

The underlying Euro STOXX 50 index index rose

0.4 percent to 2,519.68 points, stuck within a range comprised

between 2,400 and 2,610 - this year's top - that has trapped the

index since September.

Loic de Galzain, a technical analyst at Societe Generale,

expected the index to break out of the channel next month,

tracking a rise on Wall Street, although it could fall again

before that.

"Now we'll probably have a consolidation toward the bottom

of the channel, but in December we'll break above 2,600," he

said. "My target for the spring is (the 2011 high at) 3,000."

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