* FTSEurofirst 300 index rises 1.3 percent
* FTSE outperforms as investors return after holiday
* cyclical among top gainers; banks, autos in demand
By Atul Prakash
LONDON, May 28 European shares rose on Tuesday, with investors in Britain catching up with the previous day's gains after returning from a long weekend, and with comments by a top European Central Bank official improving sentiment.
At 0754 GMT, the FTSEurofirst 300 index was 1.3 percent higher at 1,245.72 points after hitting a 5-1/2-year high of 1,258.09 last week, while Britain's FTSE 100 gained 1.5 percent on expectations central banks would continue to stick with their stimulus measures for some more time.
"I expect the major markets to test resistance levels of last week as investors are still seeking higher highs and new record levels in the near term, whilst the central banks are continuing their quantitative easing operations," Tom Robertson, senior trader at Accendo Markets, said.
The rebound came after a sharp sell-off from multi-year highs late last week after the U.S. Federal Reserve cast doubt on the future of its stimulus plan, but both the Bank of Japan and the European Central Bank have since reaffirmed that their expansive policies will stay in place.
The European Central Bank's Executive Board member Joerg Asmussen said on Monday the bank will stick to its expansive monetary policy for as long as necessary.
Germany's DAX advanced 1.2 percent to trade near its recent record highs, Spain's IBEX rose 1.6 percent, while Italy's FTSE MIB gained 1.7 percent.
"There is still some nervousness, but investors are also feeling that equities are the best asset class and the United States ... is generally moving in the right direction," Keith Bowman, equity analyst at Hargreaves Lansdown, said.
"A lot of investors have still got relatively core defensive portfolios, but we are seeing clients gradually adding cyclicals including banks and airlines sectors."
Cyclical sectors, which usually perform better than the rest in a positive economic environment, were in demand. Banks , travel and leisure and automobile sectors climbed 1.5 to 1.0 percent.
Italy's Fiat rose 4 percent to its highest since August 2011, topping the FTSEurofirst 300's list of gainers, as speculation over a deal to buy the 41.5 percent stake it does not already own in Chrysler continued.
On the negative side, state-owned lender Bankia fell 10 percent despite a multi-billion-euro cash injection, as expectations of a quick recovery faded following tough business conditions and a challenging restructuring plan. (Editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)