* FTSEurofirst 300 rises 0.9 percent
* Credit Agricole leads banks higher after results
* Diageo up, Ahold down, on results
By Brian Gorman
LONDON, Aug 25 (Reuters) - European shares were higher on Thursday morning, extending a rally into a fourth day as speculation grew that U.S. Federal Reserve chairman Ben Bernanke would announce stimulus measures for the struggling U.S. economy on Friday.
Corporate results that beat forecasts also helped sentiment.
The heavyweight European banking sector , down 29 percent this year on worries about its exposure to the euro zone debt crisis, rose 1.7 percent.
French bank Credit Agricole rose 6.4 percent after it posted better than expected quarterly earnings, weighed by well-flagged losses in Greece.
Raiffeisen Bank International rose 4.5 percent after the Vienna-listed emerging European lender reported second-quarter results that beat expectations.
Other banks to gain included Royal Bank of Scotland RBS.l and Barclays , up 6.6 percent and 5.2 percent respectively after recent weakness.
The FTSEurofirst 300 index of top European shares was up 0.9 percent at 944.79 points at 0816 GMT, after rising 1.4 percent on Wednesday. It was still down 15 percent in 2011.
Strategists said some of the rally was due to short covering.
"Everyone is waiting to see what comes of the Wyoming meeting. I would be uncomfortable being aggressively short going into the weekend. And corporate results don't look too bad." said Andy Lynch, fund manager at Schroders, which manages 197 billion pounds.
"If the U.S. numbers come out in line with what was implied by the Philly Fed number (which showed a sharp contraction in manufacturing activity) then it is not going to get better anytime soon. But if that was an (aberration), then we probably can sustain a rally."
Recent weakness has made stocks look cheap. Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a one-year forward price-to-earnings of 9, against a 10-year average of more than 13.
While investors are worried the U.S. economy may slip into recession, they are not convinced that Fed chairman Ben Bernanke was ready to signal another bond-buying programme when he addresses a central bank conference on Friday in Jackson Hole, Wyoming.
"The market has got very excited. I do not think there will be quantitative easing, but there could be some sort of stimulus measures ... to help create jobs," said Justin Urquhart Stewart, director at Seven Investment Management.
"The good thing is that you can look at the corporates, some of which offer very good value. And the bad news is out there. There is no reason to think the market will fall significantly further."
Across Europe, Britain's FTSE 100 was up 0.4 percent, Germany's DAX rose 0.9 percent and France's CAC40 rose 1.1 percent.
DIAGEO CHEERS MARKET
Among other individual movers, Diageo rose 4 percent, after the world's biggest spirits group reported full-year results ahead of forecasts, leading Shore Capital to repeat its "buy" rating.
However, Dutch grocer Ahold fell 4.3 percent after missing second-quarter profit forecasts, due in part to the difficulty of passing on higher food costs to cash-strapped shoppers.
Economic news continued to raise concern for investors.
German consumer sentiment fell slightly going into September, a survey showed, hitting a 10-month low as the euro zone debt crisis and fears of another recession in Europe and the United States weighed on expectations. (Editing by Dan Lalor) ============================================================= For rolling updates on what is moving European shares please click on [STXNEWS/EU =============================================================
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