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* FTSEurofirst 300 flat after Thursday's sharp drop
* BP gains 3 pct after leaking well capped
* Banking stocks under pressure ahead of BofA, Citi results
* For up-to-the-minute market news, click on []
By Blaise Robinson
PARIS, July 16 (Reuters) - European stocks were flat on
Friday morning, erasing early gains as banking stocks drifted
lower while investors braced for results from bellwethers Bank
of America <BAC.N> and Citigroup <C.N>.
Oil major BP <BP.L> rose 3 percent after saying it has
capped its leaking well in the Gulf of Mexico.
At 0840 GMT, the FTSEurofirst 300 <> index of top
European shares was flat at 1,034.02 points, on track to record
a weekly gain of more than 1 percent.
BP, whose stock had been hammered since the oil spill
started in mid-April, said late on Thursday it had stopped the
leak with a containment cap installed three days earlier.
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"The cap was always going to create a knee-jerk reaction
this morning. However, other issues need to be addressed as to
how much will the spill cost the firm and the litigation cases
that will go on for years and the damage done to the firm's
name," a trader said.
"Asset disposals/stake purchase are issues that will keep
the shares active but until these issues are resolved, BP is not
quite out of the woods just yet. Management issues, too, could
create uncertainty. However, as brokers turn positive the
momentum will turn. Absolute downside is limited."
In spite of Friday's rally, the stock is still down 37
percent since the spill started in mid-April.
Banking stocks lost ground, with Banco Popolare <BAPO.MI>
down 1 percent and Credit Agricole <CAGR.PA> down 0.3 percent
after both stocks starting the session in positive territory, as
investors braced for earnings from Bank of America and
Citigroup, eager to see if they will confirm the positive trend
in the sector signalled by JPMorgan's <JPM.N> results on
Thursday.
"The earnings season is off to a very good start, but the
big question remains: how bad will be the slowdown in the second
half? Until we get a clear answer, the market will be prone to
big swings like the ones we've seen over the past 20 days," said
Philippe Gijsels, senior equity strategist at Fortis Bank, in
Brussels.
NO CATASTROPHES EXPECTED
Banking stocks, which feature among the top losers in Europe
so far this year, were also under pressure ahead of the
publication of stress test results next week.
Jean-Claude Juncker, the chairman of euro zone finance
ministers, said on Friday the stress tests on the European banks
should not reveal any "catastrophes" but the reviews should be
tough.
"I am not expecting any big catastrophes," he told Austrian
newspaper Kurier. "But there cannot be any glossing over, the
tests are based on reality."
Goldman Sachs analysts think the results will be positive
for the sector, as they will likely bring pressure to
consolidate smaller, more fragile institutions, while
reaffirming the strength of large listed banks, including
the major Spanish financial institutions.
"We do not expect large listed European banks to
raise equity as a result of the stress tests," they wrote in a
note.
Around Europe, UK's FTSE 100 index <> was up 0.2
percent, Germany's DAX index <> up 0.1 percent, and
France's CAC 40 <> up 0.1 percent.
Investors were also bracing for earnings from General
Electric Co <GE.N>, seen as a harbinger for the global economy.
The conglomerate is expected to break a nine-quarter streak
of earnings declines on Friday, but investors' focus will be on
what the company has to say about its prospects over the next
few quarters.
Also on the earnings front, France's Carrefour <CARR.PA>,
the world's second largest retailer, was down 1 percent as
investors digested a quarterly sales release that offered a
mixed bag of news.
"With a lot still to deliver, and similar earnings growth
available at Tesco <TSCO.L>, we remain sellers," Execution Noble
analysts wrote in a note.
The FTSEurofirst 300 <>, which lost 1.1 percent on
Thursday, is down 7.1 percent since reaching a peak in April,
when fears over the euro zone debt crisis escalated.
(Reporting by Blaise Robinson; editing by Simon Jessop)
