STOCKS NEWS EUROPE-Italy's Intesa up on MS, Barclays upgrades

Shares in Italy's biggest retail bank Intesa Sanpaolo (Frankfurt: IES.F - news) rise 1.6 percent, bucking a slightly lower European banking sector, following two rating upgrades on the stock.

Morgan Stanley (Berlin: DWD.BE - news) changes its rating on the stock to "overweight" from "equal-weight" while Barclays (LSE: BARC.L - news) now rates Intesa "equal-weight" from "underweight."

"Improving sovereign spreads and funding markets continue to benefit earnings and valuation of Italian banks, and we price in these effects," Morgan Stanley (Shenzhen: 002588.SZ - news) analysts say in a report.

By 1030 GMT traded volume is half the last month's daily average.

"There have been two upgrades and that's what the market is concentrating on. It's shrugging off S&P's view that recovery is still a long way away for Italian banks," a Milan-based trader says.

The rating agency forecasts in a report published late on Tuesday that Italian banks will need to set aside as much as 42 billion euros in provisions against loan losses this year.

Reuters messaging rm://valentina.za.thomsonreuters.com@reuters.net