(Updates prices at settle)
* FTSEurofirst 300 up 1.1 pct, hits highest level since 2008
* Broad-based rally as ECB unveils new stimulus
* Banks lead gains, seen benefitting from ABS purchases
By Francesco Canepa
LONDON, Sept 4 (Reuters) - European shares rose on Thursday, with a benchmark hitting a 6-1/2 year high, as the European Central Bank further cut interest rates and unveiled plans to buy assets in a bid to shore up inflation in the euro zone.
The ECB unexpectedly cut interest rates to record lows and the bank's president Mario Draghi said it would start buying securitised loans and covered bonds next month to help unblock lending in the euro zone.
Yields on euro zone sovereign bonds fell, further boosting the attractiveness of stocks in a low-return environment. The the FTSEurofirst 300 index of top European shares offers a 3.3 percent yield, compared to 2.4 percent on Italy's 10-year bond.
The FTSEurofirst 300 closed up 1.1 percent at 1,399.43 points, having set its highest level since early 2008 at 1,400.99 points. The index risen around 8 percent since mid-August as investors anticipated the ECB's move.
"Even if these measures would turn out not to be as effective as the ECB is hoping that doesn't mean that stocks in the mid-to long-term won't go up as once again the market is flooded with liquidity and there are very few alternatives to stocks," said Markus Huber, a senior trader at Peregrine & Black.
Trading volume was nearly 40 pct higher than the FTSEurofirst's daily average for the past three months.
The broad-based rally saw all sectoral indexes in the STOXX Europe 600 close in positive territory, led by banks , which are set to benefit from selling asset-backed securities to the ECB.
"This will be quite positive for European banks as a whole, allowing them to free up capital from loans and to lend to the real economy," Carlos Peixoto, an analyst at BPI in Porto said.
Britain's FTSE 100 index closed roughly flat, however. It was weighed down by BP, down 5.9 percent, after a U.S. district judge said on Thursday the oil major was "grossly negligent" for its role in the 2010 spill in the Gulf of Mexico.
On the upside, Britain's Standard Life surged 8 percent after the financial services group agreed to sell its Canadian operations for about $3.7 billion to Manulife Financial .
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up (Reporting By Francesco Canepa; Editing by Toby Chopra and Angus MacSwan)