Banks lead European shares up on Greek bailout talk

* FTSEurofirst 300 <.FTEU3> rises 1 pct

* Banks rise on Greek bailout hopes

* For up-to-the-minute market news, click on [STXNEWS/EU]

By Brian Gorman

LONDON, May 31 (Reuters) - European shares rose on Tuesday on talk that a fresh bailout deal for debt-laden Greece would go ahead, with banks among the biggest gainers.

However, strategists cautioned that a more fundamental improvement was needed on the bigger euro zone debt picture for shares to see lasting gains.

At 0901 GMT, the FTSEurofirst 300 <.FTEU3> index of top European shares was up 1 percent at 1,144.36 points, after falling 0.2 percent in the previous session in low volumes, as both the U.K. and U.S. markets were closed for a holiday.

The benchmark is on course to fall 1 percent for the month of May, having risen 2 percent in 2011.

The European Union raced to draft a fresh bailout package for indebted Greece to release vital loans next month and avert the risk of the euro zone country defaulting.

Germany, which along with some other countries had resisted extra funding, is considering concessions in efforts to support the country by dropping its push for an early rescheduling of Greek bonds, the Wall Street Journal reported on Tuesday. [ID:nL3E7GV07I]

"Greece not being forced into a complete restructuring is what's being taken well," said Ian King, head of international equities at Legal & General, which has 356 billion pounds ($586.6 billion) under management.

"May has been a weak month for the markets, because there has been so much uncertainty. This is one piece of uncertainty removed, though we know we're not out of the woods."

Banks, many of which have exposure to Greek and other euro zone peripheral debt, were among the biggest risers.

Heavyweight banks to rise included Deutsche Bank , Societe Generale , Intesa SanPaolo and UniCredit , up between 2.2 and 2.7 percent.

Greek banks <.FTATBNK> rose 4.8 percent.

Across Europe, Germany's DAX <.GDAXI> rose 1.9 percent; France's CAC40 <.FCHI> and Britain's FTSE 100 <.FTSE> rose 1.4 and 1 percent respectively.

The Thomson Reuters Peripheral Eurozone Countries Index <.TRXFLDPIPU> was up 2.5 percent.

OILS GAIN

The bailout news helped the euro rise to a three-week peak against the dollar, supporting crude and metals prices.

Brent topped $116, helping to boost shares for Total , ENI , BP , Repsol and Statoil , up between 1.4 and 2.4 percent.

Tuesday's gains for equities were "a triumph of optimism over practicality," said Justin Urquhart Stewart, director at Seven Investment Management. "Until people come up with structural reforms for the system, then all we're doing is treating the symptoms, not the causes."

But Urquhart Stewart said there was scope for shares to move higher. "All it takes is a bit of enthusiasm and people to see that stocks aren't looking badly valued," he said. Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 <.STOXX> carrying a one-year forward price-to-earnings of about 10.5 against a 10-year average of 13.4.

L&G's King was also optimistic, arguing indicators were still positive, albeit not as strong as they had been: "Given the speed with which certain U.S. indicators recovered, you wouldn't expect them to sustain that. The economic stimulus is still there, even though people are discussing the withdrawal of QE2, there's still reasonably healthy growth, both U.S. and globally."

Among individual stocks, BASF gained 3.8 percent, as traders pointed to a Goldman Sachs note, in which analysts raised their price target and said the chemicals heavyweight would benefit from the rising oil price and above-trend global economic growth.

Austrian steel group Voestalpine rose 2 percent after forecasting strong full-year results as a continued recovery in all sectors led to a forecast-beating fourth quarter. (Editing by Louise Heavens) ($1=.6069 Pound)