European shares rise led by commods, banks

* FTSEurofirst rises 1.2 percent

* Energy adds most points on back of higher oil price

* China PMI above 50, lifting basic resources

By Peter Starck

FRANKFURT, July 1 (Reuters) - European shares rose early on Wednesday as energy stocks drew strength from higher oil prices and Chinese economic data gave a lift to resource stocks such as steelmaker ArcelorMittal .

By 0917 GMT, the pan-European FTSEurofirst 300 <.FTEU3> index of top shares was up 1.2 percent at 860.09 points, boosted also by banks, notably Commerzbank which shot up on news of a political deal giving German banks greater scope than before to rid balance sheets of toxic assets.

The European benchmark index rose 2.2 percent in the first half of 2009 thanks to a gain of 15.9 percent in the second quarter, after hitting a lifetime low on March 9.

The second-quarter rally came to a halt by mid-June and the FTSEurofirst has remained range-bound since then. It fell 1.1 percent on Tuesday.

"Some investors seem to be ready to buy on the dips," said LBBW analyst Michael Koehler.

"There is no clear downward dynamic," he added.

Other strategists said many investors appeared to be on hold, awaiting the U.S. second-quarter corporate earnings season kicking off with bellwethers such as Alcoa on July 8 and Intel and Johnson & Johnson on July 14.

"Q2, 2009 earnings revisions have now turned positive with the season only a week away, a striking contrast to recent seasons where estimates declined coming into reporting," Goldman Sachs said in a research note.

That, said JPMorgan, was making investors cautious.

"The view is that (consensus earnings) expectations have moved too far too fast, setting the scene for a disappointment," JPMorgan said in a June 30 strategy note.

Oil & gas <.SXEP> added the most points to the FTSEurofirst early on Wednesday, with Royal Dutch Shell , BP and Total up between 1.7 percent and 1.8 percent.

Oil rose above $71 a barrel after a fall in U.S. crude stocks buoyed hopes of a demand recovery. [ID:nSYD509355]

China's manufacturing sector extended its recovery in June, its official purchasing managers' index consolidating for the fourth month above the watershed mark of 50. [ID:nPEK138883]

RESOURCES RALLY

In European stock markets, basic resources was the strongest sector, up 3 percent on the DJ Stoxx index <.SXPP>, led by ArcelorMittal, up 2.8 percent, and miner Rio Tinto .

Rio was up 3.5 percent. A source briefed on the matter told Reuters that China's state-owned Chinalco was likely to participate in Rio's $15.2 billion rights offer. [ID:nSYD518726]

Steelmaker ThyssenKrupp rose 3.1 percent.

Banking <.SX7P> was the second strongest sector measured by points contribution. Commerzbank climbed 16.7 percent, BNP Paribas was up 2 percent and Barclays rose 1.4 percent.

Standard Chartered added 1.0 percent. A source with direct knowledge of the matter said StanChart was in talks to purchase assets in China and India owned by the Royal Bank of Scotland (RBS) , whose shares rose 1.1 percent.

The DJ Stoxx retail index <.SXRP> rose 1.8 percent, with Marks & Spencer up 4.3 percent after the British retailer reported a smaller-than-expected drop in first-quarter underlying sales and said consumer spending seemed to be stabilising. [ID:nLU57554]

Telecoms <.SXKP> rose on the back of an upgrade of the European sector to "overweight" from Credit Suisse, which said that telecoms have the highest 2009 free cash flow yield and highest dividend yield of any European sector.

BT Group traded 3.4 percent higher, Vodafone was up 1.7 percent, France Telecom put on 2.1 percent and Deutsche Telekom rose 1.3 percent.

Losing 5.9 percent, telecoms was one of the three weakest sectors in Europe in the first half of 2009. [ID:nLU94057]

Later in the day, the focus will be on the U.S. private-sector ADP employment report at 1215 GMT and the U.S. Institute for Supply Management's (ISM) index of national factory activity at 1400 GMT. (Editing by Hans Peters)