European shares lifted by stronger banks; Man Group surges

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* STOXX 600 rises, but still down around 7 pct in 2016

* Banks lead sectoral gainers

* Man Group (LSE: EMG.L - news) tops STOXX gainers

By Danilo Masoni and Sudip Kar-Gupta

MILAN/LONDON, Oct (HKSE: 3366-OL.HK - news) 14 (Reuters) - European shares rose on Friday to claw back ground lost in the previous session, with banking stocks outperforming, while hedge fund Man Group also surged higher.

The pan-European STOXX 600 index rose 1.3 percent, after touching during the previous session a three-month low.

The index however remains down by around 7 percent so far in 2016, but Clairinvest fund manager Ion-Marc Valahu backed having a "long" position to bet on more gains for European stocks.

He cited expectations that Deutsche Bank (LSE: 0H7D.L - news) would reach a settlement with U.S. authorities over alleged mis-selling of mortgage backed securities as one reason for this.

Deutsche Bank shares rose 2 percent, and Valahu also cited expectations that Italy would fix problems with its struggling banks as a further reason to stay upbeat on European stocks.

"You should stay 'long' on European equities. I expect positive resolutions on Deutsche and Italian banks," he said.

Europe's STOXX Bank was the biggest sectoral gainer with a gain of 2.2 percent, further undepinned by better-than-expected results from three big U.S. banks.

Shares (Berlin: DI6.BE - news) in Banca Popolare di Milano (Milan: PMI.MI - news) and Banco Popolare both rose more than 6 percent as investors bet shareholders would approve a merger to create Italy's third-largest lender when they meet on Saturday.

Shares in French telecoms group SFR climbed 3.8 percent after rival Altice (Other OTC: ATSVF - news) acquired another 5 percent stake in SFR, with the broader STOXX Europe 600 telecoms index advancing by 1.4 percent.

Shares in British hedge fund Man Group jumped 13.8 percent to top STOXX gainers after the company posted a rise in assets under management, and announced a share buyback and the acquisition of investment management company Aalto.

"Overall, we think (this) is an encouraging release, and reiterate our 'Buy'," said Bank of America Merrill Lynch analyst Philip Middleton in a research note.

Software AG slumped 8.7 percent after reporting a drop in licence revenue. (Reporting by Danilo Masoni; editing by Mark Heinrich)