Shares in companies such as budget airline EasyJet (EZJ.L), Accor (ACCP.PA), which runs Ibis budget hotels, betting firm William Hill (WMH.L) and Premier Inn hotel chain owner Whitbread (WTB.L) have gained 36 to 64 percent this year.

The budget names, from hotels to airlines, have lifted the STOXX Europe 600 Travel and Leisure index .SXTP by 20 percent, making it one of the year's top performing sectors even as the euro zone teeters on the brink of recession.

While constraints on European consumers' spending should see the budget providers continue to do well, the travel and leisure sector's outperformance could evaporate over the next six to 12 months.

Easing concerns about a possible euro zone collapse may encourage investors into assets with more scope to benefit from recent central bank moves to boost economic growth.

This could particularly help the banks, which are up 12 percent year-to-date .SX7P. The STOXX Europe 600 index .STOXX as a whole is up about 10 percent.

The U.S. Federal Reserve's pledge to pump $40 billion into the economy each month until it sees a sustained upturn in the jobs market, the European Central Bank's plan to buy bonds and China's move to inject cash into its money market, among other moves, have prompted some to position for a rebound in firms most exposed to an improvement in economic output.

Deutsche Bank this month upgraded the banks and insurance sectors to "overweight" saying it was time to increase exposure to some of those so-called "cyclical" sectors. Societe Generale analysts also said financial shares were attractive as sovereign risk in the euro zone had diminished.

"These (budget) stocks can continue to do well. However, they are not the type of equities you would expect to be outperformers in a bull market. There you would expect higher beta stocks like financials to take the lead," Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said.

A Reuters poll last month forecast the euro zone's blue chip Euro STOXX 50 index .STOXX50E would rise nearly 12 percent by mid-2013, while EPFR fund flow data showed the flight of cash from European stock funds slowed sharply in the third quarter.

Recent moves provide a glimpse of this likely trend. Shares in EasyJet and Whitbread have gained about 12 percent since the end of July, while banks and autos .SXAP are up 15 to 22 percent.

"Probably we have already seen the best of the outperformance of the companies that offer cheaper alternatives," said Peter Dixon, economist at Commerzbank.

"Possibly over the coming months, highly cyclical sectors such as banks start to become more attractive as investors begin to think about a recovery in the global economy."

The strong gains have also made low-cost providers relatively expensive compared to other sectors. According to Thomson Reuters StarMine SmartEstimates, Whitbread now trades at 14.6 times its expected earnings over the next 12 months, while EasyJet is at 9.5 times and William Hill at 12.2 times.

By contrast, UK lender Barclays (BARC.L) trades at 6.3 times and French rival BNP Paribas (BNPP.PA) is at 6.9 times.

POOR CONSUMER CONFIDENCE

Among consumer discretionary companies, though, the cheaper brands still offer value compared to an average price-to-earnings ratio of around 14, and they are likely to continue to outperform more expensive names as long as subdued wage growth constrains Europeans' spending.

"In the short term ... further upside is limited for the consumer discretionary sector, although the discount retailers relative to the sector as a whole are likely to outperform," James Butterfill, global equity strategist at Coutts, said.

Households in the euro zone have struggled since the global financial crisis of 2008/2009 and only saw disposable incomes grow during the brief recovery of 2010. Retail sales in the region barely rose in August.

Tight household budgets have helped shares in Easyjet gain 55 percent so far this year, more than double the average price rise for European airlines. Associated British Foods (ABF.L), owner of clothing retailer Primark, is up 18 percent for 2012.

A gloomy outlook and hardship have also lifted the shares of betting firms, which were already performing well after rapid growth in their online businesses.

"People like an escape and betting offers that. Betting can be a relatively cheap form of entertainment," said Chris Beauchamp, equity analyst at IG Index."

Analysts said consumers were favouring low-ticket items offering instant gratification such as cinemas and betting shops. And the trend was likely to continue.

"Consumers have felt a squeeze on their personal finances, but still need to buy things and go on holidays, so will naturally look to cut costs where they can," Beauchamp said. (Editing by Nigel Stephenson)

• A Permanent Economic Emergency