(Reuters) - European shares were higher at midday Friday, led by banks after an Italian bond auction generated solid demand although not as spectacular as Thursday's Spanish debt sale.

The pan-European FTSEurofirst 300 index of top shares was up 0.6 percent at 1,025.18 points by 1117 GMT, off an earlier high and still on track for its fourth week of gains.

With banks among the top performers, the STOXX Europe 600 Banks index was up 2.3 percent. Banks, many of which have large exposure to debt in peripheral euro zone countries like Italy, have been hit hard by concerns about the bloc.

Buyers, with an appetite for risk, were kept in the market after Italy raised the planned amount and sold its November 2014 benchmark bond at an average rate of 4.83 percent, down from the 5.62 percent yield paid last time.

It was not the best auction ever, but ... there is a glimmer of hope things are improving in the euro zone, said Angus Campbell, head of sales at Capital Spreads.

There is some sort of degree for risk appetite for euro zone peripheral debt and that should help the broader market. If you do want to risk your money in euro zone peripheral debt you are going to get a very good return.

Traders said there were still underlying threats to the euro zone, with concerns about Greece's debt swap deal, while Italy faces a challenging funding task in 2012 and tougher five and 10-year sales scheduled for Jan. 30.

The Euro STOXX 50 volatility index, a key gauge of Europe's investor 'fear' fell 4.1 percent. The higher the volatility index, the lower investor appetite for risk.