* Stocks very attractive relative to bonds -360 AM's Jabes
By Blaise Robinson
PARIS, May 15 (Reuters) - European shares hit more multi-year highs on Wednesday after data showing the euro zone remains stuck in recession fuelled expectations that central banks will keep flooding markets with liquidity.
Banking stocks were among the biggest gainers, with Italy's Banca Monte dei Paschi di Siena jumping 8 percent after posting a smaller-than-expected quarterly loss and confirming its intention to pay a coupon on state loans in cash, sparking hopes of a turnaround for the lender.
Portugal's Banco Espirito Santo rose 3.9 percent and France's Credit Agricole added 3.7 percent.
At 1035 GMT, the FTSEurofirst 300 index of top European shares was up 0.5 percent at 1,242.54 points, a level not seen since mid-2008.
The euro zone's blue chip Euro STOXX 50 index was up 0.4 percent at 2,806.48 points, a near two-year high, while Germany's DAX pushed above its recent record high in early trade, gaining as much as 0.4 percent, before nudging back to a 0.2 percent rise on the day.
The euro zone economy shrank for the sixth straight quarter in January-March, data showed on Wednesday, marking the longest recession on records back to 1995.
The European Central Bank cut interest rates to a record low earlier this month and stands ready to lower them again, and it has flooded the market with excess liquidity.
"The market is driven by one thing: the massive liquidity injected by central banks. With bond yields at such levels, equities seem to be the only interesting asset class," said Thierry Jabes, strategist at 360 Asset Managers, which has 180 million euros ($232 million) under management.
"The reaction to the bad German GDP data is paradoxical. It shows convergence with other euro zone economies, which should help soften Germany's policy stance and create a consensus for further interest rate cuts and stimulus measures."
With 10-year German bond yields at 1.4 percent and the average dividend yield for euro zone blue-chips at 3.4 percent, the gap in yields between the two asset classes is 200 basis points, according to Thomson Reuters Datastream.
European stocks have gained nearly 10 percent since mid-April, mostly boosted by the ECB monetary policy.
"Investors are buying every dip," said David Thebault, head of quantitative sales trading, at Global Equities.
"With gold now bearish and high-yield debt in a bubble, equities is the only interesting risky asset class out there."