REFILE-Europe shares rise on PMI, led by commods, banks

(Refiles to correct spelling of shoots in paragraph four)

* FTSEurofirst 300 index rises 2 pct by midsession

* China PMI data lifts economic recovery hopes

* Commodity stocks, banks, autos top gainers

By Dominic Lau

LONDON, June 1 (Reuters) - European stocks rose by midsession on Monday, driven by banks, commodity shares and automakers as optimism about a recovery in the global economy grew after China's manufacturing activity continued to expand in May.

By 1039 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 2 percent at 879.23, having hit 881.27 points -- its highest level since Jan. 7.

"It has been a fantastic move since March 9 ... normalisation of a lot of things back to the pre-Lehman Brothers levels," said Philip Lawlor, chief portfolio strategist at Nomura.

"The bigger issue is really what's the new normal. The big debate has now shifted from, 'Are we seeing any green shoots?', 'Are are we in a depression, deflation?' to what will be the new normal going forward."

The Basic Resources index .SXPP, which includes mining and steel companies, was a standout gainer, up 6.3 percent at its highest level since mid-October.

Steelmaker ArcelorMittal (ISPA.AS) rose 7 percent and among miners BHP Billiton (BLT.L) gained 4.8 percent, Rio Tinto (RIO.L) added 6.5 percent and Vedanta Resources (VED.L) surged 7.8 percent.

"Metals & mining remain the best avenue to gain exposure to a variety of themes: steepening yield curves, rebound in manufacturing activity, sustained Chinese and EM growth, global asset reflation, weakening dollar," JPMorgan said in a note.

China's official purchasing managers' index (PMI) in May recorded its third straight month above the mark of 50 that separates expansion from contraction, fuelling optimism that the worst of the global downturn may be over. [ID:nSP428779]

Oil producers also tracked firmer crude prices CLc1, with BP (BP.L), Royal Dutch Shell (RDSa.AS) and Total (TOTF.PA) rising 1.6 percent to 2.4 percent.

In the euro zone, manufacturing PMI rose to a seventh-month high of 40.7, up from 36.8 in April and just above the flash reading and economists' expectations for it to hit 40.5.

Across Europe, with trading volumes reduced by public holidays in some countries, Britain's FTSE 100 index .FTSE was up 1.6 percent, Germany's DAX .GDAXI gained 3.1 percent and the French CAC 40 .FCHI added 2.3 percent.

U.S. stock index futures SPc1 DJc1 NDc1 also rose, pointing to a higher Wall Street open.

UBS reversed its regional preferences between the United States and Europe, upgrading European equities to "overweight" from "underweight" and downgrading U.S. shares to "underweight" from "overweight.

"At the same time that valuations gap has widened, fundamental differences have begun to narrow. Growth expectations, in GDP and earnings, may start to turn higher in Europe," the broker said in a report.

"Moreover, profitability gaps have narrowed, suggesting a smaller premium U.S. valuation may be warranted. Finally, the policy response to financial crisis and recession in Europe appears to have caught up."

AUTOS, BANKS CHARGING HIGHER

European auto shares were higher, with the DJ STOXX European sector index .SXAP up 4.8 percent, after U.S. government officials said carmaker General Motors (GM.N) would file for bankruptcy later in the day. [ID:nN01398575]

Peugeot (PEUP.PA) surged 7.5 percent, also boosted by a price target hike from Credit Suisse, while Renault (RENA.PA) advanced 6.4 percent and BMW (BMWG.DE) rose 4.6 percent.

Daimler (DAIGn.DE) soared 6 percent after Banc of America-Merrill Lynch added the Germany luxury carmaker to its "Europe 1" list.

Banks were another top performing sector, with Societe Generale (SOGN.PA), Barclays (BARC.L) and Banco Santander (SAN.MC) up 2.4 percent to 5.4 percent.

Air France-KLM (AIRF.PA) was down 0.6 percent. A spokesman for the Paris airports authority said an Air France plane on its way from Brazil to Paris had not arrived and had disappeared from radar screens. The airports authority also said the plane is an Airbus 330-200.

Europe's benchmark index rose 0.7 percent last week. In May, it rose 4 percent, a third straight monthly gain and its best winning streak in two years.

Later in the day investors will focus on the U.S. Institute for Supply Management's (ISM) national factory report for May.

The ISM is forecast to rise to 42.2 from 40.1 in April, according to 68 economists polled by Reuters. G7TODAY (Additional reporting by Peter Starck; editing by Simon Jessop)