(Corrects first paragraph to read "monthly" instead of "weekly")
* FTSEurofirst 300 up 0.7 pct, Euro STOXX 50 up 0.4 pct
* Both indexes testing major resistance levels
* UK banks drop after Moody's credit downgrade
* Valuation ratios at lowest levels since 2009
By Blaise Robinson
PARIS, Oct 7 (Reuters) - European share price indexes edged ahead on Friday, extending the past two days' sharp gains on hopes of coordinated action in the euro zone to beef up their banks' balance sheets and as investors bet monthly U.S. jobs data will signal some improvement in the bigger economic picture.
UK banks bucked the trend, with Royal Bank of Scotland down 1.1 percent and Lloyds Banking Group down 2.3 percent after Moody's downgraded the credit ratings of the two banks.
At 0751 GMT, the FTSEurofirst 300 index of top European shares was up 0.7 percent at 947.09 points, a level not seen in five weeks.
The benchmark -- which has jumped 7 percent in the past two sessions and is on track to record a second consecutive weekly gain -- moved above its 50-day moving average for the first time since late July and broke above the neckline of an inverse head and shoulders chart pattern shaped over the past five weeks, sending a strong bullish signal for chartists.
"European stock indexes as well as shares in a number of sectors such as banking, insurance, oil, utilities and telecoms seem to be stabilising. This is the result of extremely low valuation," Cholet Dupont strategist Vincent Guenzi said.
"This stabilisation may be a sign of a strong rebound to come if we get significant progress in the resolution of the euro zone debt crisis."
The sharp losses suffered by European stocks over the past 2-1/2 months have knocked valuation ratios to levels not seen since the heat of the financial crisis in early 2009.
The broad STOXX 600 index trades at 8.8 times 12-month forecast earnings, well below a 10-year average of 13.2 times. Wall Street's S&P 500 trades at 10.7 times expected earnings, while the MSCI emerging markets index trades at 8.7 times.
Investors brushed aside news that Moody's also downgraded nine Portuguese banks on Friday.
"The downgrade was expected following the downgrade of the country's rating," said Sebastien Barthelemi, credit analyst at Louis Capital Markets, in Paris.
"The fact that the ECB (European Central Bank) is putting in place unconventional measures to support the banks and provide liquidity, and with the prospect of a coordinated plan to recapitalise the banks, the lenders' credit default swaps have tightened, outperforming sovereign CDS," he said.
Euro zone banks led the gains on Friday, with UniCredit up 2.4 percent and Credit Agricole up 1.8 percent. The STOXX euro zone banking sector index has surged 25 percent since Sept. 23.
Around Europe, UK's FTSE 100 index was up 0.4 percent, Germany's DAX index up 0.5 percent, and France's CAC 40 up 0.3 percent.
The euro zone's blue chip Euro STOXX 50 index was up 0.4 percent at 2,258.74 points, testing a downward trendline formed by Aug. 17 and Sept. 1 peaks, as well as the neckline of an inverse head and shoulders chart pattern. A clear break above the two lines would send a short-term bullish signal. (Reporting by Blaise Robinson; Editing by Greg Mahlich)
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