European shares hit 7-year high as Italian banks rally

* FTSEurofirst 300 up 0.7 pct, hits 7-year high

* Rises for 3rd straight session on hopes of ECB QE

* Swiss shares recover after last week's correction

* Italian co-operative banks boosted by reform hopes

By Blaise Robinson and Francesco Canepa

PARIS/LONDON, Jan 19 (Reuters) - European shares hit a seven-year high after rising for a third day on Monday as Italian banks rallied, boosted by the prospect of a significant corporate governance revamp, and Swiss stocks clawed back some of last week's losses.

Broader market sentiment has been supported by expectations the European Central Bank will on Thursday unveil plans to buy sovereign bonds to try to fight deflation and revive growth.

"People are buying before it," said Justin Haque, a broker at Hobert Capital Markets.

Shares (Dusseldorf: DI6.DU - news) in co-operative Italian banks rose on the back of a draft government decree which would abolish a rule granting one vote to each shareholder regardless of the size of their stake.

Popolare Milano (Milan: PMI.MI - news) , Banca Popolare dell'Emilia Romagna, Banco Popolare and UBI were up between 10 percent and 16 percent.

Swiss bank Julius Baer (Other OTC: JBARF - news) was the top gainer among larger European stocks as it rose 7 percent. The private bank said it did not suffer any losses in the two trading days after the Swiss National Bank's decision to abandon a three-year cap on the franc.

The Swiss benchmark index SMI was up 4.3 percent after shedding 13 percent last week after the central bank's shock decision sent the franc soaring, denting the attractiveness of Swiss exports.

At 1455 GMT, the FTSEurofirst 300 index of top European shares was up 0.7 percent at 1,416.96 points, after hitting the highest level since early 2008 at 1,418.11 points.

Expectation that the ECB will start buying government bonds, lowering yields on those bonds and pushing some investors into riskier asset classes such as equities, has helped European stocks outperform Wall Street this month.

Analysts expect the ECB to announce plans to buy around 500-600 billion euros of sovereign bonds, although doubts remain about the make-up of the purchases and how the burden would be shared between the ECB and national central banks.

With sovereign bond yields already at record lows and stocks at multi-year highs, some investors have raised questions about market upside from here.

"There's a positive bias on the market overall ahead of the ECB meeting, but the market is very volatile and there are big question marks on the upside potential going forward," said Jean-Louis Cussac, head of Paris-based Perceval Finance.

Analysts at Citi were more positive, targeting a 15-20 percent return on European equities this year based on the assumption that QE would underpin nominal economic growth and earnings, allowing companies to pay dividends. (Editing by Alison Williams)