* FTSEurofirst 300 index gains 0.2 percent
* Peripheral banks rise on new package hopes
* Index makes seventh week of losses
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By Joanne Frearson
LONDON, June 17 (Reuters) - European shares rose on Friday, led by banks after French and German leaders signalled progress towards to a new rescue package for Greece, but stocks were down on the week in their longest run of weekly losses in three and a half years.
Peripheral banks were the standout gainers, with the Thomson
Reuters Peripheral Banks index up 5.6 percent,
led by National Bank of Greece
German Chancellor Angela Merkel in a shift for Berlin backed a new package for Greece based on the so-called "Vienna Initiative", which would include voluntary private sector participation, which French President Nicolas Sarkozy also endorsed.
The pan-European FTSEurofirst 300 index of top shares closed up 0.2 percent at 1,086.73 points and ended the week down 0.3 percent after it failed to break above its intra-week high.
"Headlines comments from Merkel and Sarkozy have helped, the key signal the market had been looking for is political unity," said Veronika Pechlaner, a manager on the 100 million euro ($144 million) Ashburton European equity fund.
The peripheral exchanges also featured among the top performers, with Spain's IBEX 35 rising 2.2 percent, Portugal's PSI 20 up 1.5 percent and Italy's benchmark gaining 1.2 percent.
Investors have recently sold-out of these exchanges on worries the Greek crisis could spread to other debt-laden countries like Spain, Portugal and Italy.
WILL IT LAST?
But traders said the index's fall for the seventh straight week, made it unlikely the market's more positive mood would last, with uncertainties for Greece still on the horizon.
Greek Prime Minister George Papandreou has appointed a new cabinet to push through painful austerity measures, with a vote of confidence expected on Tuesday.
"The big thing is the confidence vote (in Greek Prime Minister Papandreou's government) next Tuesday and it is not a given that it gets passed... if the vote of confidence goes against him, we are back down again and all bets are off," said a trader at a leading European investment bank.
Goldman Sachs said to "sell" into any rally connected to positive news on the debt-laden euro zone peripheral countries.
The banking sector is still overshadowed by the euro zone debt crisis.
European banks, for example, have been borrowing nearly $1.1 trillion from U.S. money market mutual funds, according to Credit Suisse estimates in a note, a less than ideal situation for the banks in the event of a sovereign default. (Reporting by Joanne Frearson. Editing by Jane Merriman)
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