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* STOXX Europe 600 up 1.2 pct
* ECB cuts asset monthly asset purchases
* Banks, miners lead sectoral gainers
* Fingerprint sinks as cuts forecast
By Danilo Masoni
MILAN, Dec 8 (Reuters) - European shares rose to their highest in eleven months on Thursday as the European Central Bank's unexpected decision to cut its monthly asset purchases helped banks extend their rally.
The ECB move pushed long dated euro zone bond yields broadly higher, which in turn further boosted banking stocks with Europe's STOXX 600 Bank index rising 2.3 percent, on track for their best week in five years.
"The ECB announced today that it will begin tapering its asset purchases ... in a clear sign that it is reaching the limits of what it is willing to do under the bond buying program," OANDA analyst Craig Erlam said in a note.
Higher yields are seen helping reduce pressure on bank margins which have been pressured by sluggish economic growth and ultra low interest rates.
"Banks typically outperform as yield curves steepen," said Barclays, adding that banks such as Societe Generale, ING and ABN Amro looked to be best placed to benefit from rising long term rates.
The ECB said it would cut its asset purchases to 60 billion euros per month from next April from the 80 billion euros, but promised protracted stimulus to aid a still fragile recovery.
The European banking index, which is still down 6.8 percent so far in 2016, was boosted earlier this week after investors rushed into buying cheap Italian banks on bets a solution to rescue ailing lender Monte dei Paschi could be found, even involving state aid.
Such expectations helped shrug off concerns over political instability in Italy after Prime Minister Matteo Renzi resigned on the back of a resounding defeat on Sunday in a referendum over his plans for constitutional reform.
The Italian banking index rose 3.6 percent to a five-month high with Monte dei Paschi rising 4.1 percent. The bank has asked the ECB for more time to wrap up a 5 billion euro ($5.4 billion) rescue plan that was thrown into doubt by Renzi's resignation.
Analyst said rescuing Monte dei Paschi through state aid would make it easier for UniCredit to push through its own mammoth capital increase early next year to beef up its balance sheet. UniCredit rose 3 percent.
Shares in UniCredit, Italy's biggest lender, were also buoyed by a 2.5 billion euros deal to sell its Polish assets.
Strong risers among other European banks included Spain's Santander, Societe Generale and Credit Suisse all up more than 3 percent.
The pan-European STOXX 600 index rose 1.2 percent to its highest since Jan. 6, also helped by gains in other cyclical sectors such as miners and autos.
Cyclical stocks got a further boost last month after Donald Trump won the race for the White House, fuelling expectations of big fiscal stimulus in the world's largest economy.
Both Germany's DAX and France's CAC blue chip indexes are now showing a positive performance for the year.
Elsewhere, shares in Swedish biometric technology firm Fingerprint Cards fell 10 percent, the top decliner in the STOXX Europe 600 index, after the company sharply cut its 2016 revenue forecast.
British bookmakers Ladbrokes Coral and William Hill fell 2.7 percent and 6 percent respectively after The Times reported a cross-party group of lawmakers would demand on Thursday stricter controls on betting machines. (Reporting by Danilo Masoni; Additional reporting by Atul Prakash; Editing by Toby Chopra)