European shares open higher; eyes on PMI, U.S. ISM

(Corrects typo in "for" in ninth paragraph, also spells out Institute of Supply Management)

FRANKFURT, June 1 (Reuters) - European shares rallied early on Monday, taking their cue from U.S. and Asian stock markets, the latter which gained strongly on data showing China's manufacturing sector continued to expand moderately in May.

At 0723 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 2.0 percent at 879.58 points, having hit 880.55 points -- its highest level since Jan. 9.

The 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.

Asian stocks and the Australian dollar shot to eight-month highs on Monday after China's official purchasing managers' index (PMI) 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.

"Three consecutive months of readings above 50 really shows that Chinese stimulatory policy is gaining traction. It looks like an economic recovery is well underway in China, possibly leading to a sustained rally and re-rating of commodity prices and associated stocks," IG Markets said in a note.

Banks .SX7P added the most points to the European top-300 index, with Societe Generale (SOGN.PA) up 3.5 percent, Commerzbank (CBKG.DE) 3.2 percent higher, Banco Santander (SAN.MC) rising 3.1 percent and Royal Bank of Scotland (RBS.L) adding 3.7 percent.

A 2 percent rise in the price of crude oil underpinned energy shares, with Total (TOTF.PA) up 2.6 percent, Royal Dutch Shell (RDSa.L) 1.9 percent higher and StatoilHydro (STL.OL) gaining 2.4 percent.

Higher metals prices lifted mining stocks. Rio Tinto (RIO.L) was up 5.3 percent, Anglo American (AAL.L) rose 4.4 percent and BHP Billiton (BLT.L) put on 3.5 percent.

Euro zone PMI data for May is due at 0758 GMT and U.S. Institute of Supply Management (ISM) figures, also for May, are due at 1400 GMT.

ING said ISM was probably the best lead indicator for U.S. GDP.

"There is a real chance that today's ISM report will produce a figure consistent with positive growth. However, there are doubts as to how durable this story will be," ING said.

In the United States, government officials said carmaker General Motors Corp (GM.N) would file for bankruptcy later on Monday. (Reporting by Peter Starck)