Positive news from Ireland is prompting a growing number of investors to look at the troubled euro zone economy, said billionaire Wilbur Ross, who this week invested 300 million euros in its largest lender.

Ross surprised many by joining Canadian firm Fairfax Financial and California's Capital Group in a 1.1 billion euro ($1.6 billion) investment in Bank of Ireland , the first significant foreign investment in Ireland's banking sector since it collapsed in 2008.

Ross said the deal was fueled by positive news from Ireland that indicate it is breaking away from its troubled peers in southern Europe and embarking on a solid recovery.

These include the government's announcement it was ahead of target to bring its budget deficit under control, lack of protest against a harsh austerity program, and the European Union's decision this month to ease the terms of an 85-billion-euro international bailout.

The macro picture of Ireland ... is clearly headed in the right direction and will very likely have a more v-shaped recovery than most other European countries, Ross told Reuters in a telephone interview late on Friday.

We have gotten a lot of inquires from other investing institutions that know us, asking about Ireland and suggesting that they at least are now willing to take a much better look than they were prior to all of this.

Irish sovereign debt prices staged an impressive rally this week in spite of growing bond market volatility elsewhere in the euro zone, in part due to the vote of confidence from the investment in Bank of Ireland.

Although Ireland is mid-way through an unprecedented eight-year cycle of austerity, social unrest is almost non-existent and unlike Greece and Portugal, Ireland is expected to return to growth this year because of a vibrant export sector and the flexibility of its economy.

IRELAND 'BIT THE BULLET'

I am genuinely impressed and have been for some time at the way Ireland bit the bullet and faced up to it, Ross said.

Unlike the Club Med economies, the former government and the present one have dealt very surgically and very quickly with the problem.

A key development was a euro zone deal that eases the terms of Ireland's bailout and positive comments from the International Monetary Fund that Ireland's program is on track, assuring investors that Ireland had virtually guaranteed funding through 2013.

Since they are fully funded at sovereign level to 2013, there can't be a government bond auction that could be undersubscribed and precipitate a problem, Ross said. There is no other country in Europe that can say they have that.

The guaranteed funding limits Ireland's exposure to a possible Greek default, which Ross said he believed would not have that much effect on Ireland.

Solid growth in the broader economy is likely in the second half of next year, Ross said, but he warned it would take longer for Bank of Ireland to turn a profit. The lender's consumer business may be dampened by high unemployment, an indicator that is likely to take longer to recover than headline GDP growth.

We don't see next the few quarters as being profit, it would be very hard for that to be the case as there are probably some meaningful loan losses yet to take, he said.

Ross, who manages some $10 billion in investments, is known for consolidating out-of-favor assets in areas such as autos, steel and coal and has recently invested in small, regional U.S. banks.

He said he was attracted to Bank of Ireland by the high quality of its management, the fact that half of its assets are outside of Ireland, and the value of its insurance arm.

Under the deal, brokered by the Irish government, Ross' New York based buyout firm WL Ross & Co will take a 9.9 percent stake in Bank of Ireland for 300 million euros. He said he will not increase its stake as any additional investment would bring regulatory complications.

Ross said the 10 cents per share he paid was far below his estimate of the bank's book value of around 26 cents per share, giving a buffer against future losses.

The new investors, who together will hold 35 percent of Bank of Ireland compared to the state's stake of 15 percent, have no plans to change the bank's management, Ross said.

Our intention to keep them in place, he said.

Ross said he is open to other Irish investment opportunities, but would focus on Bank of Ireland. He refused to rule out a bid for the life insurance arm of Irish Life , but said it would be only possible if his company found an insurance firm to partner with.

We believe in Ireland so we will look at other assets, but this (Bank of Ireland) will be a very big project, Ross said. This will be our primary focus.

(Editing by Catherine Evans)

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