* FTSEurofirst 300 ends up 0.3 percent
* Volumes at 25 percent of 30-day average; UK on holiday
* Erste Bank top gainer on bullish central bank report
By Simon Jessop
LONDON, Dec 28 (Reuters) - European shares closed higher in thin holiday trade on Tuesday, bouncing from the previous session's selloff and adding modestly to the December rally.
The FTSEurofirst 300 closed up 0.3 percent at 1,140.31 points and remains on track for its biggest monthly gain since March, bouncing from Monday's 0.9 percent fall in reaction to China's weekend interest rate rise.
Volumes were still extremely low, however, at just a quarter of the 30-day average, with many traders' books closed for the year, while a UK holiday and bad weather in the U.S. northeast further thinned trading floors.
The UK market, home to a number of banking, oil and mining heavyweights, is due to reopen on Wednesday. No major corporate or economic news is expected.
Cheap equity market valuations should continue to support the market heading into the new year, although economic headwinds remain, Geert Ruysschaert, equity strategist at BNP Paribas Fortis, said.
"Equities offer value for money, but macroeconomic uncertainty is preventing them from rising faster," he said, citing euro zone sovereign debt concerns as key, although equity market returns were still enough "with respect to their risk".
The STOXX Europe 600's forward price-to-earnings ratio is around 10.9, well below a 10-year average of 13.8, according to Thomson Reuters Datastream.
After receiving early support from news that Japanese factory output had risen for the first time in six months, European shares briefly dipped on weaker-than-forecast U.S. consumer confidence and housing data, before recovering.
Europe's response to the consumer confidence data was in line with expectations, said a London-based trader. "I wasn't necessarily expecting them to be that great, as the jobless figures of late haven't been that encouraging," he added.
Across Europe, France's CAC 40 closed down 0.1 percent and Germany's DAX ended flat. At the Europe close, the Dow Jones industrial average and S&P 500 were both near flat.
Among individual issues, Vienna-listed Erste Bank rose 2 percent, buoyed by a positive profit outlook for Austrian banks from the country's central bank.
French telecoms equipment maker Alcatel-Lucent rose 1.9 percent after it agreed a deal with U.S. authorities to settle charges it paid bribes to win business in Latin America and Asia.
Among carmakers, BMW continued its Monday sell-off on a weakening outlook for sales in China and a downgrade to "sell" from "buy" from Metzler Equity Research.
A decision by Beijing to limit new-car registrations in the capital would hit the German firm particularly hard, as it had the "highest exposure to China in terms of relative earnings contribution", the broker said. (Additional reporting by Atul Prakash and Harpreet Bhal; Editing by Erica Billingham)