European stocks rose while bonds and the euro were mostly steady on Thursday ahead of a European Central Bank meeting that is expected to cut interest rates, the first act in two crunch days for efforts to quell the euro zone's debt crisis.

The ECB is also expected to unveil a new package of bank aid, while investors will look for any hint it will intensify its buying of bonds issued by the euro zone economies struggling with high debt, setting the stage for a critical euro zone summit that starts with a dinner on Thursday night.

The main European stocks index, the FTSEurofirst 300 <.FTEU3> was up around 0.7 percent shortly after the start of trading.

Investors' portfolios are currently extremely defensive, positions in cash have never been so high, everyone is 'underweight' on peripherals, said Philippe Ithurbide, head of research and strategy at Amundi, which has 692 billion euros ($925 billion) in assets under management.

This is rather good news because it means we could have a nice rebound.

The euro hovered at $1.342, within its tight $1.3332-3486 range of the past week. In Asian trading it nudged as high as $1.3428 after the Nikkei business daily said the G20 was preparing a $600 billion lending facility for the IMF to help Europe, but the effect faded after G20 and IMF officials said there had been no such discussions.

Europe's banks will be in the spotlight later on Thursday as the European Banking Authority (EBA) will reveal how much extra capital they will need to cope with the debt crisis.

(Additional reporting by Blaise Robinson; editing by Patrick Graham)

International Monetary Fund