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European shares recover poise as Deutsche Telekom rises

* 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 Friday to end a two-day losing run, with Deutsche Telekom outperforming, while expectations of an eventual deal on the United 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 of the biggest lifts to the FTSEurofirst, as UBS raised its rating on the German group to "buy" from "neutral".

Swiss chocolate maker Lindt also outperformed with a 4 percent rise, which traders attributed to an upgrade on the stock by Vontobel to "buy" from "hold" and Lindt's decision to start a share buyback programme.

The FTSEurofirst 300 hit a 5-year high of 1,274.59 points in late September, while the Euro STOXX 50 hit a 2-year high of 2,955.47 points.

Both markets have risen by roughly 10 percent since the start of 2013 but have lost ground in October after the U.S. government had to partially shut down this week due to disagreement 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 Jack Lew has said the government will hit no later than Oct. 17.

Yet the majority of long-term investors still felt a deal would eventually be reached, which would ensure that any equity market pullback in October would then be followed by a rebound.

"Day by day, people are getting more tense," said Francois Savary, 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 our equity 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 investment firm SteppenWolf Capital LLC, also expected an eventual U.S. debt ceiling deal.

Theologites sold Euro STOXX 50 'put' options due to expire in December that had bet on a fall in that index as he also felt the possibility that the European Central Bank (ECB) might inject fresh liquidity to markets via its LTRO operation would support European equities.

ECB policymakers have sought to temper expectations of another imminent LTRO operation, but Theologites said that just the fact this was an option open to the ECB was enough to support European equities.

"Just the mention of another LTRO by the ECB makes everyone feel a little more comfortable in adding on risk," he said.