* Euro STOXX 50 up 0.5 pct, FTSEurofirst 300 flat
* UBS upgrade boosts Deutsche Telekom
* Lindt also lifted by broker upgrade
* Most traders still betting on eventual U.S. debt deal
By Sudip Kar-Gupta
LONDON, Oct 4 (Reuters) - European shares edged up on Fridayto end a two-day losing run, with Deutsche Telekomoutperforming, while expectations of an eventual deal on theUnited States' debt issues also propped up equities.
The euro zone's blue-chip Euro STOXX 50 index rose by 0.5 percent to 2,916.26 points in mid-session trade,while the broader pan-European FTSEurofirst 300 index was flat at 1,242.32 points.
A 2 percent gain at Deutsche Telekom gave one ofthe biggest lifts to the FTSEurofirst, as UBS raised its ratingon the German group to "buy" from "neutral".
Swiss chocolate maker Lindt also outperformed witha 4 percent rise, which traders attributed to an upgrade on thestock by Vontobel to "buy" from "hold" and Lindt's decision tostart a share buyback programme.
The FTSEurofirst 300 hit a 5-year high of 1,274.59 points inlate September, while the Euro STOXX 50 hit a 2-year high of2,955.47 points.
Both markets have risen by roughly 10 percent since thestart of 2013 but have lost ground in October after the U.S.government had to partially shut down this week due todisagreement among politicians over the budget.
The budget deadlock has in turn led to concerns about the$16.7 trillion U.S. debt ceiling, which Treasury Secretary JackLew has said the government will hit no later than Oct. 17.
Yet the majority of long-term investors still felt a dealwould eventually be reached, which would ensure that any equitymarket pullback in October would then be followed by a rebound.
"Day by day, people are getting more tense," said FrancoisSavary, chief investment officer at Swiss firm Reyl.
"But we are betting on the fact that a deal will be found,and this should provide us with the opportunity to increase ourequity exposure," he added.
Savary recently increased his exposure to European equities,adding holdings in stocks such as carmaker Volkswagen and construction group Smurfit Kappa.
Phoebus Theologites, chief investment officer at investmentfirm SteppenWolf Capital LLC, also expected an eventual U.S.debt ceiling deal.
Theologites sold Euro STOXX 50 'put' options due to expirein December that had bet on a fall in that index as he also feltthe possibility that the European Central Bank (ECB) mightinject fresh liquidity to markets via its LTRO operation wouldsupport European equities.
ECB policymakers have sought to temper expectations ofanother imminent LTRO operation, but Theologites said that justthe fact this was an option open to the ECB was enough tosupport European equities.
"Just the mention of another LTRO by the ECB makes everyonefeel a little more comfortable in adding on risk," he said.
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