(For a Reuters live blog on U.S., UK and European stock markets, click or type LIVE/ in a news window)

* KBC Group gains on Morgan Stanley upgrade

* Avanza rises after Q4 results beat

* German producer prices fall more than expected in Dec

Jan 19 (Reuters) - European shares rose on Friday, boosted by gains in financials, although the benchmark index remained on course for a weekly decline after investors tempered their rate-cut expectations.

The pan-European STOXX 600 index was up 0.4% as of 0925 GMT, extending gains from the previous session.

Banks rose 0.4%, propped up by an over 2% jump in KBC Group after Morgan Stanley raised the Belgian integrated bank-insurance group's rating to "overweight" from "equal-weight".

Sweden's Avanza jumped 3.3% and was among top performers on the STOXX 600, after the financial services provider's fourth-quarter results beat market expectations.

Still, hawkish remarks from European Central Bank policymakers prompted traders to scale back their bets of an interest rate cut, putting the benchmark index on course for a weekly loss of around 1%.

"The outlook for inflation is maybe a bit more sticky than perhaps we all hoped at the end of 2023, which doesn't come as a huge surprise," said James Baxter, founder of Tideway Wealth.

"So it was just a rather exuberant sell off in gilt and bonds, which is now reversing and that's taking some of the edge off the market rally."

German producer prices fell more than expected in December, decreasing 8.6% year-on-year, although the blue-chip DAX 40 index was up 0.4%.

Separately, British retail sales volumes suffered the biggest drop in sales in almost three years during December, stoking concerns of recession in the region. The FTSE 100 index, however, advanced 0.7%.

Ericsson and Nokia were laggards, down 3.0% and 2.6% respectively, after Barclays downgraded the telecom providers, warning of a slowdown of the 5G rollout in India.

Technology stocks rose for a second session, up 0.8%. Berenberg said it likes Europe's technology, media and telecom sector, seeing an upside in 2024 from a macro rebound, generative artificial intelligence, and structural growth.

Among other major movers, Teleperformance gained 6.6% after Stifel upgraded the teleservices firm's rating to "buy" from "hold".

Temenos rose 5.2% after the Swiss banking software firm's fourth-quarter and annual results beat estimates, with the stock hitting its highest level in more than a year. (Reporting by Shristi Achar A in Bengaluru; Editing by Sherry Jacob-Phillips and Varun H K)