By Kit Rees
LONDON (Reuters) - European shares held steady on Friday, underpinned by gains among heavyweight consumer goods firms as the pan-European STOXX 600 (STOXX) index was set to snap a two-week losing streak.
The STOXX 600 index reversed earlier gains to trade flat by 0937 GMT, while Germany's DAX (GDAXI) advanced 1 percent.
The growing prospect of a grand coalition in Germany boosted sentiment around the region's equities, as the DAX has been stuck around the 13,000-point level for the past two weeks.
"There's a lot of impetus there to resolve the situation without recourse to another election," Ken Odeluga, market analyst at City Index, said, adding that an easing in the euro's ascent was also supportive of German equities.
Germany's Social Democrats said that they were ready to hold talks with other parties on breaking the political deadlock.
"The German political crisis is not really looking very crisis-like," Paul Donovan, chief economist at UBS Wealth Management, said in a note.
"It is all very orderly and, frankly, a little dull."
Though corporate news was sparse, shares in consumer staples firms were in focus after China said that it would cut import tariffs on some consumer products.
Shares in Danone (PA:DANO) rose 1.1 percent, while Diageo (L:DGE) advanced 0.6 percent.
Europe's food and beverages index (SX3P) was among the sectoral gainers, up 0.2 percent.
Banks (SX7P) were also strong, up 0.9 percent with Italian lenders topping the index.
Shares in Banco BPM (MI:BAMI), BPER Banca (MI:EMII) and UBI Banca (MI:UBI) were suspended from trading after rising more than 5 percent, following media reports that two European banking directives were in the works in Brussels looking to introduce looser rules around bad loan disposals.
More broadly investors have been focusing on the brightening economic picture in Europe, which is expected to support the bloc's equities going forward.
Thursday's Euro zone PMI data showed that business growth gathered pace as the year draws to a close, further buoying sentiment, while growth rates for the bloc have outpaced its peers.
Furthermore, German business confidence rose unexpectedly in November to an all-time high.
Europe's STOXX 600 has gained 7 percent so far this year, recouping last year's losses while Germany's DAX is up more than 13 percent and France's CAC (FCHI) has risen nearly 11 percent.