* FTSEurofirst 300 index closes 0.4 percent higher
* Food, beverages among top gainers; Danisco up 4.4 percent
* Sovereign debt situation weigh on market sentiment
By Atul Prakash
LONDON, Dec 16 (Reuters) - European equities ended higher on Thursday, helped by gains in food and beverages shares following a jump in Danisco stocks on strong results, though worries about euro zone debt weighed on sentiment.
Appetite for riskier assets remained high and the FTSEurofirst 300 index of top European shares hovered near this week's 26-month highs. The index closed up 0.4 percent at 1,131.31 points and is 8 percent ahead this year.
Investors kept an eye on the two-day EU summit which comes as Portugal and Spain face the kind of bond market pressure that pushed Greece and Ireland into EU/IMF bailouts.
Moody's Investors Service put Greece's sovereign foreign currency credit rating on review for possible downgrade. On the other hand, the European Central Bank decided to almost double its capital to cope with increased credit risk.
"The risk of contagion continues to play on investors' minds and that is certainly one of the biggest macro risks that you can point to as you look towards 2011," said Henk Potts, equity strategist at Barclays Wealth.
"But the corporate picture still looks very bright, the trend towards higher profits continues and public policy should remain shareholder-friendly. The name of the game is to try and hold on to the gains seen over the past couple of weeks."
Food and beverages shares featured among the top gainers, with the sector index up 1 percent. Food ingredients and enzymes maker Danisco rose 4.4 percent after posting a bigger rise than expected in second-quarter profit.
The VDAX-NEW volatility index, one of Europe's main barometers of investor anxiety, fell as much as 10 percent, signalling a rise in investors' risk appetite. It pared losses later, but stayed at its lowest level since late 2007.
The lower the volatility index, based on sell and buy options on Frankfurt's top-30 stocks, the higher investors' desire for risky assets such as equities.
"The low Christmas trading volumes definitely lend themselves towards further upside, meeting little resistance, and with eight trading days to go the bulls will still be optimistic," said Will Hedden, sales trader at IG Index.
TECHNICAL OUTLOOK
The technical picture was positive, with the euro zone's blue chip Euro STOXX 50 index up 0.1 percent at 2,845.78 points to stay above a Fibonacci level representing a 38.2 percent retracement of its drop from a 2007 high to a 2009 low.
Technology shares were in demand, with the sector index rising 1 percent. Mobile network equipment maker Ericsson gained 4.3 percent, with several analysts attributing the rise to a positive note from Handelsbanken.
Banking shares were mixed, with Bank of Ireland down 5.1 percent and Dexia falling 4.2 percent. However, Alpha Bank rose 1.4 percent and Societe Generale gained 0.8 percent.
Across Europe, Portugal's PSI 20 fell 0.7 percent and Italy's FTSE MIB fell 0.2 percent. The Peripheral Eurozone Countries Index slipped 0.4 percent.
"The big picture isn't that bad for stocks, but the problem is fears over euro zone debt issues are like a sword of Damocles," said Christian Jimenez, fund manager and president of Diamant Bleu Gestion, in Paris. (Additional reporting by Blaise Robinson in Paris; Editing by David Cowell)