* FTSEurofirst 300 index gains 1.4 percent
* Stocks rally as Fed's stimulus cut seen modest
* Cyclical shares lead broad stock market rally
By Atul Prakash
LONDON, Dec 19 (Reuters) - European shares climbed to a two-week high on Thursday in a broad market rally, with cyclical stocks racing higher after a modest stimulus cut by the Federal Reserve and signals it would keep rates low for a longer period.
The U.S. central bank said it would trim the pace of its monthly asset purchases by $10 billion to $75 billion and suggested its key interest rate would stay at rock bottom even longer than previously promised.
"The overall announcement is not as hawkish as it first appeared. As the Fed announced the taper, it also pushed out expectations for when it is going to lift the policy rate," said Daniel McCormack, strategist with Macquarie.
"None of this is a negative. Equities tend to outperform in tightening cycles and the reason for that is that in tightening cycles growth and demand is strong. This all means you want to be in cyclicals such as industrials, technology, consumer discretionary and financials."
Thursday's stocks rally was led by cyclicals, with financials , construction and materials, property and autos rising 1.4 to 2 percent.
At 1100 GMT, the pan-European FTSEurofirst 300 was up 1.4 percent at 1,277.10 points after rising as far as 1,280.51, the highest since early December. The index is up nearly 13 percent so far this year.
European equities mirrored overnight gains in U.S. stocks, with both the S&P 500 and the Dow Jones closing at all-time highs after the move by the Fed, which said the U.S. economy was strong enough to easily withstand a liquidity cut.
"Stronger economic growth, rising bond yields and a pick up in business investment in 2014 all steer us to a pro-cyclical stance. We 'overweight' financials and tech and remain underweight consumer staples," UBS said in a research note.
Charts also pointed to further gains, with some technical factors turning supportive after recent price gains. The euro zone's blue chip Euro STOXX 50 index, up 1.6 percent at 3,022.15 points, crossed its 50-day moving average, generally a short-term bullish signal.
"The index is running through a medium-term consolidation below its long-term resistance zone of 3,050-3,100. It tested and confirmed the support area at around 2,900 and that could lead the index into the resistance area around 3,100 in the coming days," Commerzbank (Xetra: CBK100 - news) technical analyst Sophia Wurm said.
Analysts were positive on the stock market's outlook, saying a recovery in the pace of economic growth would help company earnings and that stocks still remained relatively cheap.
"We believe that the equity market rally has legs and we will see a positive drift into the New Year. This will be particularly true for the euro zone, where valuations are still very attractive," said Philippe Gijsels, head of research at BNP (Paris: FR0000131104 - news) Paribas Fortis Global Markets.
According to Thomson Reuters Datastream, the Euro STOXX 50 trades at 12.2 times expected earnings in the next 12 months, compared with 14.8 times for the U.S. S&P 500 index.