* FTSE up 1.1 percent, Japan sell off too far
* Banks lead rally, StanChart up, Citi bullish
* Vodafone rises on sector M&A talk
By David Brett
LONDON, March 21 (Reuters) - Britain's top share index rallied on Monday, lifted by banks, miners and automotive firms, with analysts saying the recent sell-off following Japan's devastating earthquake may have been overplayed.
Oil prices, a threat to the global recovery, however, remained near record highs, around $115 a barrel, as western powers launched a second wave of air strikes in Libya, threatening supplies in the Middle East region.
By 0910 GMT, the FTSE 100 was up 60.76 points, or 1.1 percent, at 5,778.89, entering its third straight session of gains, but the index is still down around 4 percent in March.
"In times of uncertainty markets do have a tendency to overreact," Richard Hunter, head of equities at Hargreaves Lansdown.
"Sentiment is finely balanced. We are seeing some bargain hunters picking up stock today but it wouldn't take too much, from recent experience, for them to take money off the table."
Banks were among the top performers as risk appetite returned among investors, with Standard Chartered up 1.7 percent.
Citigroup said: "Standard Chartered's recent sell-off creates an opportunity to buy a growth stock at a lower multiple."
Elsewhere, Vodafone lent its considerable weight to the FTSE's strength, up 4.0 percent, boosted after U.S. telecoms giant AT&T said it was planning to pay $39 billion for Deutsche Telekom's T-Mobile USA.
"The impact on Vodafone will be positive in the U.S. due to consolidation benefits on pricing and margin," Espirito Santo Investment Bank said.
Deutsche Bank says the deal is "unambiguously positive for the long-term value of the U.S. market and Vodafone's 45 percent stake in Verizon Wireless".
Sector peer BT was up 2.6 percent.
SELL OFF OVERDONE
Analysts said the retreat among global equities since the massive earthquake in Japan has been overplayed.
JP Morgan said it questioned the sustainability of the 4-6 percent markdown in global equities "given that loss of activity due to the earthquake is likely to be temporary".
The broker said it saw value in the insurance and automotive sectors, while miners and capital goods firms are good plays on emerging markets outperformance and higher commodity prices.
Miners and energy shares were among the top risers among London's blue chip stocks, but India-focused refiner and power generator Essar Energy fell 4.2 percent after results.
Elsewhere, engine maker Rolls Royce rose 2.6 percent, lifted by an upgrade by Evolution Securities to "buy" from "hold".
Weir Group, a supplier of industrial pumps and valves, gained 2.7 percent after Credit Suisse upped its rating to "outperform" on valuation grounds.
The positive broker comment lifted sentiment in the engineering sector, with IMI and GKN 1.8 and 1.4 percent higher respectively.
Technical analysts counselled that the near-term rebound maybe short-lived.
"Two scenarios are currently developing. If sentiment shifts and additional buyers enter the market, the FTSE could retrace at least 50 percent of the break from 6,105.77 to 5,512.00 to 5,809.00," James Hyerczyk, analyst at Autochartist, said.
"With the main trend down, however, this action would likely attract fresh selling pressure."
Hyerczyk warned should the 50 percent retracement fail to materialize, then new shorting may start, with the main goal to take out last week's low near 5,512.00." (Editing by Jon Loades-Carter)