UPDATE 2-Bank rally leads European stocks higher

* Banks snap 3-day losing streak
* Steel stocks fall after U.S. Steel's weak forecast
* Swiss lenders gain after SNB raises negative rate
threshold

(Updates to close)
By Sruthi Shankar
Sept 19 (Reuters) - European stocks rallied on Thursday as
investors snapped up battered shares of eurozone banks after the
U.S. Federal Reserve toned down expectations of further interest
rate cuts.
The eurozone banks index .SX7E , which has underperformed
broader markets this year, jumped 2.4% to end a three-day run of
losses while an index of eurozone stocks .STOXXE rose 0.6%.
Shares of Italian and Spanish banks including Bankia SA
BKIA.MC , UBI Banca UBI.MI and Banco Sabadell SABE.MC were
among the top gainers on the STOXX 600 after the Fed cut rates
as expected on Wednesday, but signalled there would be a higher
bar to further cut in borrowing costs. European banks, along with sectors such as miners and
automakers, have gained in the recent weeks as investors rotated
into cyclical sectors due to signs of easing U.S.-China trade
tensions and assurances of support from major central banks.
"European banks have been lagging behind and are priced
relatively cheap," said Teeuwe Mevissen, senior market economist
at Rabobank.
Mevissen also said the European Central Bank's unveiling
last week of a tiered rate system to mitigate the negative
impact of sub-zero interest rates on banks was relief.
Spain's .IBEX and Italy's .FTMIB indexes, which are
heavily exposed to banks, outperformed the broader markets with
a 1.2% and 0.8% gain, respectively.
London-listed shares .FTSE rose about 0.6%, with banks
leading gains after the Bank of England kept interest rates on
hold as expected. The top gainer on the STOXX 600 was Britain's online trading
platform IG Group IGG.L , which jumped 10.3% after it said it
added more clients and saw improved trading activity in August.
Rivals Plus500 PLUSP.L and CMC Markets CMCX.L also rose on
the news. Clothing retailer Next PLC NXT.L was the biggest decliner
on the STOXX 600 after saying the first few weeks of the autumn
season had been disappointing. European steel stocks ArcelorMittal MT.AS , Salzgitter
SZGG.DE , SSAB SSABa.ST , Outokumpu OUT1V.HE and
Thyssenkrupp TKAG.DE fell between 1.6% and 4.8% after United
States Steel's X.N gloomy current-quarter earnings forecast.
Swiss shares .SSMI rose 0.5% as the Swiss National Bank
held its main policy rate at -0.75% and said it expected to
stick to its ultra-loose monetary stance. Shares in major lenders Credit Suisse CSGN.S and UBS
UBSG.S rose more than 1% as the central bank increased the
threshold above which commercial banks who park their money with
the central bank have to pay negative interest.
Oslo-listed shares .OSEAX closed flat after Norway's
central bank raised its main interest rate as expected, but said
further policy tightening had become less likely.