Europe shares gain as data settles nerves

LONDON Oct 5 (Reuters) - European shares ended higher on Monday as better-than-forecast data in the U.S. and Europe helped lift banks, while telecoms were boosted by a merger deal between Telenor (TEL.OL) and Alfa Group.

Forecast-beating service sector data from both the Euro zone and the U.S. helped settle nerves after U.S. jobless data on Friday added to worries about the emerging global economic recovery, pushing the index to its lowest in four weeks.

But the index is still well short of highs it set at the end of the third quarter and investors were still cautious ahead of Q3 results.

"Investors will be looking at what guidance companies will give for next year. I think they will disappoint so it will be a case of one step forward, one step back," said Heinz-Gerd Sonnenschein, equity markets strategist at Postbank, in Bonn.

Banks were among the biggest gainers, with Standard Chartered (STAN.L), HSBC (HSBA.L), Barclays (BARC.L), Lloyds (LLOY.L), Royal Bank of Scotland (RBS.L) and BNP Paribas (BNPP.PA) rising 0.2-4.1 percent.

Telecoms stocks were also strong gainers after the Telenor deal, with Telefonica (TEF.MC), BT Group (BT.L) and France Telecom (FTE.PA) gaining 1-3.5 percent, while Telenor gained 14.6 percent. (Reporting by Simon Falush)