* 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
By Francesco Canepa
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.
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.”