(REUTERS) -- European stocks were slightly higher in a choppy session on Monday, with weakness in banks after a mass credit downgrade of Eurozone countries offset by a rise in defensives, such as pharmaceuticals.

Late on Friday, Standard & Poor's cut the ratings of Italy, Spain, Portugal and Cyprus by two notches and France, Austria, Malta, Slovakia and Slovenia by one notch each.

The STOXX Europe 600 Eurozone Banking Index fell 0.9 percent, but was only reversing some gains from the previous session.

People were prepared for it. As a result the reaction has been calm, which is good. People should be focusing on the corporate fundamentals, with some earnings coming up. If you do some good analysis, you can get ahead of the game, said Andy Lynch, fund manager at Schroders, which manages 197 billion pounds.

Stocks on the rise included Swiss drugmaker Novartis , up 1 percent. It will be one of the first major European companies to report fourth-quarter earnings next week.

At 1156 GMT, the FTSEurofirst 300 index of top European shares was up 0.1 percent at 1,019.07 points after losing as much as 0.5 percent in early trade. The index remains near the five-month high it hit last week but has failed to break above key technical levels such as its 200-day moving average.

The euro zone crisis remains key to investor sentiment but some strategists said events in Greece were more important than the S&P downgrades.

Greek Prime Minister Lucas Papademos said on Monday he was confident a deal on a crucial debt swap plan would be reached in time, striking an optimistic tone despite mounting concern over Athens' race to avoid a disorderly default.

Greek banks fell 3.7 percent and have lost more than 80 percent of their value in the last year.

What really matters at this point is the measures by policymakers to fix things, and the recent change in policy by the European Central Bank, such as cutting interest rates and providing unlimited liquidity, is really changing the game, David Thebault, head of quantitative sales trading, at Global Equities, said.

EUROPE LAGS WALL STREET

The benchmark European index fell 10.7 percent in 2011, sharply underperforming Wall Street, hit by fears the escalating euro zone debt crisis would lead to massive defaults and write-downs and push the region into recession.

Shares in the index trade at 9.9 times 12-month forward earnings, versus 11.9 times for stocks on the S&P 500 index , Thomson Reuters Datastream data shows.

But despite relatively cheap valuation levels, fund flows into European equities remain negative, according to research firm EPFR Global, whose data for the seven-day period ended Jan. 11 showed Europe equity funds posting outflows for the ninth time in the past 10 weeks.

Among individual companies, Carnival Corp, the owner of the cruise ship that capsized off Italy's west coast, fell 15.6 percent after estimating the impact to 2012 earnings for loss of use alone to be around $90 million.

U.S. markets are closed on Monday for the Martin Luther King holiday.