Miners, banks power European shares to 28-mth high

* FTSEurofirst 300 up 1 pct, touches 28-month high

* Miners among top gainers as metals prices advance

* Financials bounce back after declines in the previous day

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

By Atul Prakash

LONDON, Jan 18 (Reuters) - European shares hit a 28-month high on Tuesday, with stronger metals on a weaker dollar and supply worries boosting miners, while automakers advanced on hopes that improving economic outlook will boost vehicle demand.

Banks bounced back after losses on Monday, with Bank of Ireland up 7 percent and BBVA rising 4 percent. The VDAX-NEW volatility index <.V1XI>, Europe's main barometer of investor anxiety, fell 4.7 percent to a four-week low, indicating that appetite for riskier assets had risen. At 0959 GMT, the FTSEurofirst 300 <.FTEU3> index of top European shares was up 1 percent at 1,168.85 points after rising as high as 1,168.99. The index is up 4 percent this year after rising more than 7 percent in 2010.

Miners featured among the top gainers as copper and aluminium prices rose. The STOXX Europe 600 Basic Materials index <.SXPP> gained 1.5 percent, while Rio Tinto rose 1.4 percent after reporting it produced record quantities of iron ore last year. [ID:nL3E7CH02W]

Analysts said expectations of good company results and lower valuations for European stocks were prompting people to buy stocks, though investors stayed cautious.

"The markets are waiting for an opportunity to move ahead rather than looking for an opportunity to take profits," said Mike Lenhoff, chief strategist at Brewin Dolphin.

"The backdrop is still very supportive. This week is a very big week for corporate earnings in the U.S. and on balance, the results should be quite good."

BIG COMPANY RESULTS

JPMorgan Chase & Co reported stronger-than-expected fourth-quarter earnings on Friday, while the market is waiting for updates from Citigroup , IBM and Apple later in the day.

Apple said Chief Executive Steve Jobs was taking medical leave for the third time since 2004, reviving fears over the long-term future of the iPhone and iPad-maker. [ID:nSGE70G0AY]

According to Thomson Reuters Datastream, Europe's stock valuation levels remain relatively low. The STOXX Europe 600 <.STOXX> carries a forward P/E ratio of 10.9, well below a 10-year average of 13.7.

Auto shares also gained, with BMW up 2 percent and Daimler AG rising 3.8 percent.

"In all, investor sentiment continues to be fragile and changeable, with volatility expected to remain in the near term," said Keith Bowman, equity analyst at Hargreaves Lansdown.

"Hopes for progress in Europe and further progressive U.S. earnings reports appear to be driving early trade. A second day of a meeting between EU finance ministers is being closely monitored," he added.

The euro zone ministers showed no indications that they were closing in on any firm decisions. The chairman of euro zone finance ministers, Jean-Claude Juncker, said they discussed many options, but favoured none. [ID:nL3E7CI0C4]

Lenhoff saw some silver linings.

"You have got a more positive approach to try to tackle the sovereign debt crisis in Europe. We have to see how far it gets, but at least they are talking and are prepared to put the issues on the table," he said.

Across Europe, Britain's FTSE 100 <.FTSE>, Germany's DAX <.GDAXI> and France's CAC 40 <.FCHI> rose 0.9 to 1.1 percent, while Spain's IBEX <.IBEX> was up 2.2 percent.

Euro zone-contagion: http://link.reuters.com/nap85r

Euro zone-bonds: http://link.reuters.com/gap85r

Stories on euro zone crisis [ID:nTOPEURO]

Comments by EU officials, finance ministers [ID:nLDE70G298]

(Editing by Mike Nesbit)