* FTSEurofirst 300 up 1.2 percent on first trading day of year
* Porsche soars after winning court case
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By Dominic Lau
LONDON, Jan 3 (Reuters) - European shares rose on Monday, the first trading day of the year, led by gains in automakers after Porsche won a legal challenge from U.S. hedge fund groups.
Porsche surged 14.8 percent on strong volumes after a U.S. federal judge dismissed a lawsuit by 10 hedge fund groups accusing the German automaker of cornering the market in shares of Volkswagen AG.
Volkswagen shares rose 3.7 percent, while the European auto index added 3 percent by 1117 GMT, shrugging off weak December auto sales figures from France and Spain while South Korean carmakers predicted rising 2011 sales on U.S. and China growth.
The FTSEurofirst 300 index of top European shares was up 1.2 percent at 1,134.71 points, after rising more than 7 percent last year. Volumes were expected to be thin during the session as Britain's FTSE 100 were closed for a holiday.
"A lot of the positive news has been priced into equities and the first half is going to be a bumpy ride for the equity market," a Germany-based equity strategist said. "The development in Germany has been surprisingly robust in the second half of 2010. However, if we look at the Ifo expectation component (and) ... M1 money supply growth, we see a strong divergence that money supply growth is significantly slowing down, while Ifo expectations have been kept rising."
Equities have been buoyed in recent weeks by expectations of brighter economic outlook in the United States after further stimulus and continuing strength in China and India, while prospects of more M&A deals also have provided support.
Weekend data showed China's factory inflation cooled in December as manufacturers expanded more slowly after a strong run in growth, reducing the need for the country's central bank to tighten monetary policy too far.
In the euro zone, surging new orders and a fast-improving labour market helped quicken the expansion of the region's manufacturing sector for the fourth month running in December, a business survey showed.
However, concerns remain that the euro zone sovereign debt crisis could spread from Greece and Ireland to Portugal and even possibly Spain and Italy.
NOKIA RISES
Nokia gained 2.5 percent after a research group forecast brisk sales of its flagship N8 handset, which the cellphone maker hopes will help it claw back its market share in the lucrative smartphone sector.
Among other gainers, Lagardere rose 7.2 percent after the French media group revealed it had entered exclusive negotiations with privately held Hearst Corp to sell its international magazines and press business for cash.
Portugal's Jeronimo Martins climbed 5.1 percent, helped by a "buy" recommendation by Natixis analysts who also raise their price target.
Across Europe, Germany's DAX, which had risen 16 percent last year, advanced 1.5 percent, while France's CAC 40 gained 2.2 percent following a 3.3-percent fall in 2010 and Spain's IBEX 35 put on 1.3 percent after a 17.4-percent drop last year.
In terms of valuations, the DAX does not appear to be expensive against other European markets after last year's performance. It carries a one-year forward price-to-earnings of 11.1 times versus CAC 40's 10.3 times and IBEX 35's 10, according to Thomson Reuters Datastream. (Additional reporting by Atul Prakash; Editing by Hans Peters)