Unicredit recommends "overweight" on European banks for first time since 2006

LONDON, Nov 4 (Reuters) - UniCredit (EUREX: DE000A163206.EX - news) , Italy's biggest bank by assets, has put an "overweight" recommendation on the European banking sector for the first time in 10 years, saying that the stabilizing environment offered further positive potential.

"The development of European government bond yields over the last few weeks suggests a medium to longer-term lower turning point," the bank said in a note on Friday, upgrading the sector from "neutral".

"From a top-down perspective, there is a high probability of a stabilization or even an improvement of net income in the European banking sector."

The STOXX Europe 600 Banks index, among the most beaten down sectors in Europe this year, has surged about 15 percent in the fourth quarter so far, helped by some encouraging earnings results from leading lenders. The index is still down about 22 percent this year.

UniCredit said the earnings estimates for the banking sector was stabilizing and the third quarter results surprised mostly to the upside.

"The earnings-revisions ratio has improved significantly in recent months and even net income shows initial signs of stabilization." (Reporting by Atul Prakash; Editing by Jamie McGeever)