European shares steadied on Tuesday on anticipation that the European Central Bank's second longer term refinancing operation (LTRO) operation would further ease balance sheet pressure among banks.

Banks, many of which have suffered massive writedowns to their exposure to euro zone sovereign debt, were among the top performers, with the STOXX Europe 600 Banks index <.SX7P> up 0.4 percent.

Gains were limited, however, after Standard & Poor's downgraded Greece's long-term rating to 'selective default', while Germany's Chancellor, Angela Merkel, faced a backbench revolt against putting more money in to fight the region's debt crisis.

The market is anticipating a good result on the LTRO, it adds some liquidity to the market and there are lots of strategists that think this will push stocks higher, Koen De Leus, strategist at KBC Securities, said.

But it is just a sign that banks still cannot go to the interbanking market to get loans and it is probably the last operation for the a while. I would not get my hopes up on a strong rally, the market could still go down 5-10 percent.

By 0810 GMT, the pan-European FTSEurofirst 300 <.FTEU3> index of top shares was up 0.1 percent at 1,074.77 points and has gained 7.3 percent so far this year.

(Reporting by Joanne Frearson)