Equity markets in southern Europe, shunned by investors worried about limping economies and sovereign debt burdens, can be mined for gems offering cheap valuations and exposure to global growth, a senior executive at Allianz Global Investors said.

While the U.S. S&P 500 index is up 14 percent versus year-ago levels <.SPX>, the pan-European FTSE Eurofirst 300 <.FTEU3> is 2.4 percent lower and performance is weaker still in the so-called European periphery.

Spain's benchmark IBEX index <.IBEX> is off 13 percent over the past 12 months, while equivalents in Italy and Portugal are down 16 percent and a quarter respectively. The main Greek index <.ATG> has nearly halved in value.

There are a couple of companies in Portugal that we think look attractive, they get damned by being in the Portuguese index, Neil Dwane, chief investment officer for Europe at Allianz Global Investors, said.

We are currently trawling through Greece to see if anything out there looks interesting and, because of the underperformance, we are starting to find that Italian stocks look interesting.

Attractive options include Italian banks - which have benefited from cheap long-term funds from the European Central Bank and are less exposed than some rivals to the volatile investment banking business - and Italian manufacturers, which could do even better if the euro weakens, Dwane said, declining to name specific stocks.

Earnings momentum in the European periphery has started to improve, with the four-week average of net downgrades at its lowest level in around a year, Citi research showed.

Euro zone equities as a whole are trading at a 12-month forward price-to-earnings (P/E) of around 10, looking cheap both versus their long-term average of 13.2 and versus the United States, where the ratio is 12.9, according to Thomson Reuters Datastream.

Once every 20 years you get an opportunity to buy it (European equities) as cheaply as today, Dwane said.

There is growth out there, you've just got to find it. You could buy a BRICs (Brazil, Russia, India and China) fund ... or you could look inside Europe and find that 33 percent of European companies' sales go to emerging markets.

Overall, he said, UK investors already have a relatively high allocation to equities but should consider shifting this between regions and sectors, while their European counterparts need to buy more stocks.

In Europe, pension funds, insurers and individuals have almost no equities at all, so they are not protected - they will either get defaulted on or they will get inflation, he said.

(Editing by David Holmes)