BNP Paribas leads European shares higher after sanctions settlement

* FTSEurofirst 300 up 0.3 pct

* BNP Paribas (Xetra: 887771 - news) rises on relief at U.S. sanctions settlement

* BNP Paribas shares had fallen sharply in recent months

* Fall in Banco Espirito Santo hits Lisbon market

By Sudip Kar-Gupta

LONDON, July 1 (Reuters) - European shares edged higher on Tuesday, with BNP Paribas among the top performers after it settled a U.S. sanctions case.

The pan-European FTSEurofirst 300 index was up 0.3 percent at 1,374.30 points in early trading - some 2 percent below a 6-1/2 year peak of 1,399.62 points reached last month.

BNP Paribas rose 3.4 percent, making it the best performer in percentage terms on the FTSEurofirst index.

It pleaded guilty to two criminal charges and agreed to pay almost $9 billion to resolve allegations that in many financial dealings it violated U.S. sanctions against Sudan, Cuba and Iran.

Analysts and investors said the stock could now recover ground lost over the last few months. Shares in BNP (Paris: FR0000131104 - news) have lost some 20 percent since Feb.13 when it announced the provision for the fine, representing a wipeout in market value of about 15.4 billion euros ($21 billion).

"The size of the fine we knew, the reaction is more to do with BNP's extremely reassuring comments and the efforts made to protect the dividend. The bank is keeping its 2015 targets so this must mean they enjoyed a very good first half of the year," said Francois Chaulet, fund manager at Montsegur Finance.

BES DRAGS DOWN LISBON BOURSE

However, Portugal's Banco Espirito Santo fell for the second day in a row on Tuesday, after dropping to an 11-month low on Monday when it failed to allay concerns about the company's dealings with its founding family and its troubled Angolan operations.

Portugal's CMVM market regulator announced late on Monday it would ban naked short-selling of shares - where an investor is under no obligation to cover its exposure - in BES and Espirito Santo Financial Group (ESFG). BES's tumble on Tuesday pushed down Lisbon's PSI (Berlin: PSAN.BE - news) -20 equity index by 1 percent.

"BES is very badly pressured by uncertainty about the group, and even the short-selling ban had only a temporary effect," said Luis Goncalves, trader at Gobulling brokers in Porto.

Commenting on the broader market trend, McLaren Securities' Torrison said he expected European stock markets to trade sideways in the traditionally quiet summer months of July and August before then rising more sharply towards the end of 2014.

Other analysts also said the market's longer-term outlook remained positive.

Even though data on Tuesday showed that manufacturing growth had eased within the euro zone currency bloc, analysts said new economic stimulus measures from the European Central Bank would support the region's stock markets.

"I think people will still buy the market on the dip," said Darren Courtney-Cook, head of trading at Central Markets Investment Management.

Europe bourses in 2014: http://link.reuters.com/pap87v

Asset performance in 2014: http://link.reuters.com/gap87v

Today's European research round-up (Reporting by Sudip Kar-Gupta Editing by Jeremy Gaunt)