* Spain's Ibex 35 rallies 1.2 pct after strong data
* Sustainable recovery to boost Spanish stocks - Deutsche Bank
* FTSEurofirst 300 up 0.1 pct as China, U.S. data caps appetite
By Francesco Canepa
LONDON, Jan 6 (Reuters) - Spanish stocks led European bourses higher on Monday after strong economic data fuelled expectations of an economic recovery in the country and revived interest in stocks in the euro zone periphery.
Spain's IBEX index was up 1.2 percent at 1532 GMT, outpacing its regional peers after data showed the country's service sector grew at its fastest pace in 6-1/2 years.
Domestically focussed lenders such as Banco Popular and Banco de Sabadell, which stand to benefit from improving economic conditions in Spain, were among top gainers, surging 7.1 percent and 3.6 percent, respectively.
Upbeat data has helped the broader MSCI Spain index rise some 30 percent over the past six months, making it the best performer among major European indexes, Datastream data showed.
"We think this is really the start of the improvement in data and we see as a sustainable story," said Gareth Evans, a strategist at Deutsche Bank.
He expected Spanish and Italian stocks to outperform a 14 percent rise in the broader STOXX Europe 600 index this year.
Italy's FTSE MIB was up 0.9 percent on Monday as a poll of the country's services sector activity showed the pace of contraction eased in December.
Even after their recent rebound, Spanish and Italian stocks offer more attractive valuations than their peers in the core countries of Germany and France.
MSCI's indexes of Spanish and Italian shares respectively trade at a 30 percent and a 50 percent discount to the MSCI Europe based on their price\book value ratios, Datastream data showed, a steeper discount than the indexes' 10-year averages.
"I'm overweight on the periphery, as opposed to France and Germany," Clairinvest fund manager Ion-Marc Valahu said. "There's still some value there."
The broader FTSEurofirst 300 index of pan-European shares was up 0.1 percent at 1,313.78 points while the euro zone's Euro STOXX 50 was up 0.2 percent at 3,079.84 points as weak Chinese and U.S. data curbed appetite for global stocks. [ID:nL2N0KD0PL}
Darren Courtney-Cook, head of trading at Central Markets Investment Management, said there may be some short-term pull-back on the European stock markets later this month as investors look to cash in gains after the region's strong finish to 2013.
The FTSEurofirst 300 rose 16 percent in 2013 to mark its best annual gain since 2009, while the Euro STOXX 50 index rose 18 percent.
Courtney-Cook felt the Euro STOXX 50 could fall to 2,950 points over the next two weeks, but added that traders should use any such weakness to buy up stocks.
"There could be a pull-back, but you should buy into that pull-back," he said.