* FTSEurofirst 300 index closes 0.8 pct higher
* Banks top gainers after strong Citigroup results
* Shire gains on merger & acquisition news
* Banco Espirito Santo falls for 6th session
By Atul Prakash
LONDON, July 14 (Reuters) - European equities rose on Monday, rebounding from near two-month lows after their biggest weekly loss in four months, with banks leading the rally following strong earnings from Citigroup.
The FTSEurofirst 300 index of top European shares ended 0.8 percent firmer at 1,363.49 points, having fallen 3 percent last week - its biggest drop since March.
The STOXX Europe 600 Banking index gained 1.1 percent to become the top sectoral gainer in Europe after results from U.S. bank Citigroup, which are keenly watched by markets across the world, showed a stronger-than expected adjusted quarterly profit and raised hopes for its peers.
"The market is expecting a good earnings season from the banking sector and Citigroup results have strengthened those expectations," said Lorne Baring, managing director Of B Capital Wealth Management in Geneva.
Citibank cleared another hurdle by reaching a $7 billion settlement over its sale of flawed mortgage securities - more than twice what many analysts had expected but less than the $12 billion sought by the government.
"Investors have reacted positively following good results from Citigroup and also because this big fine is now out of the way. The market hates uncertainty," Baring added.
Other cyclical sectors - which do well in a healthy economy - gained. Miners rose 1.10 percent on hopes a global recovery would improve demand for raw material in the longer term, and the retail sector rose 1.12 percent, led by Sports Direct which gained 3.6 percent after announcing plans to launch in Australia and New Zealand
"Sports Direct has consistently outperformed competitors. They made a lot of money last year," said Mike Jarman, chief market strategist at H2O Markets. "(Sports Direct founder Mike Ashley) realises that to continue to create shareholder revenue (he) has to expand elsewhere."
Among other climbers, London-listed drugmaker Shire rose 0.7 percent after saying it was ready to recommend a new 31 billion pound ($53 billion) takeover offer from AbbVie, entering talks after receiving a fifth bid from the U.S. firm.
"AbbVie are coming in at a decent level. It's attractive to Shire shareholders and I think they'll take it - AbbVie sounded their key shareholders out and I think a fair level has been reached," TJM Partners' head of trading Manoj Ladwa said.
Swiss logistics firm Kuehne & Nagel jumped 4.5 percent following news its net profit rose 8.3 percent to 313 million Swiss francs ($351.49 million) in the first half on revenues of 8.5 billion francs.
On the downside, Portugal's biggest listed bank Banco Espirito Santo fell 7.5 percent, taking its losses since early July to nearly 50 percent.
BES was at the centre of global market jitters last week after the disclosure of financial irregularities at a web of family-held holding companies behind the lender.
Credit Suisse remained underweight Portuguese equities despite a broadly positive view of peripheral Europe, citing its private sector debt levels, which are the highest of any developed nation, poor economic momentum and risk of deflation.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up (Additional reporting by Andrew Winterbottom in London and Alistair Smout in Edinburgh; Editing by Catherine Evans)