Drugmakers, commods help Europe shares to advance

* FTSEurofirst 300 index gains 0.7 pct

* Drugmakers advance, Elan leads the sector

* Banks broadly higher, but UBS down 1.7 percent

* For up-to-the-minute market news, click on [STXNEWS/EU]

By Atul Prakash

LONDON, June 29 (Reuters) - European equities rose early on Monday, with Irish drugmaker Elan leading the sector on reports Novartis was in talks to buy parts of the company, while commodity shares tracked firmer metals and crude prices.

At 0827 GMT, the FTSEurofirst 300 <.FTEU3> index of top European shares was up 0.7 percent at 850.29 points after falling in the previous two sessions. The index, which slumped 45 percent in 2008, has jumped 31 percent since falling to a lifetime low in early March.

Elan rose 6.6 percent after the Sunday Times newspaper said that Novartis was in talks to buy parts of Elan, including its flagship multiple sclerosis products and its Alzheimer's disease pipeline. Novartis was down 0.3 percent.

A spokeswoman for Elan said it did not comment on speculation. A spokesman for Novartis declined to comment.

Novo Nordisk gained 4.4 percent, clawing back most of last week's losses, on expectations that sales of its modern insulins will benefit from concerns over the safety of Sanofi-Aventis's rival product Lantus.

Sanofi rose more than 1 percent, levelling out after plunging last week on concerns about imminent new research findings on Lantus and cancer. Details of four European trials highlighting a possible link were made public after the market close on Friday.

But despite Monday's gains, the European index is on track to close the month in a negative territory after advancing in the previous three months.

"It's quite clear that we have lost momentum over the last week or so. The strong rally that we saw in cyclicals through the early part of the second quarter has started to fade," said Darren Winder, head of macro and strategy research at Cazenove.

"But I don't think this is the beginning of a downward trend. The markets are basically in a trading range at the moment and are looking for signs of economic recovery. And those signs are not going to be there in a very visible way until the autumn."

UBS fell 1.7 percent. The bank is to pay 3 billion to 5 billion Swiss francs ($2.77-$4.62 billion) in the next two weeks to settle a U.S. tax probe into the bank, Swiss newspaper Sonntag reported. [ID:nLS407218]

Other banks were broadly higher. Barclays , Lloyds , Royal Bank of Scotland and Societe Generale were up 0.3-3.2 percent.

Energy stocks were among top gainers on the index as they tracked firmer crude oil prices . BP , Royal Dutch Shell , BG Group , Repsol , Total and StatoilHydro added 0.6-1.7 percent.

Miners got strength from a 1.2 percent rise in copper prices and a 1.3 percent increase in nickel prices. BHP Billiton , Antofagasta , Rio Tinto , Xstrata and Eurasian Natural Resources rose 0.3-2.2 percent.

Anglo American was up 0.4 percent. The Sunday Telegraph reported that the miner was building its defences against a 41 billion pound ($67.74 billion) merger approach from Xstrata by plotting talks about a major Chinese investment. [ID:nLS509625]

Across Europe, UK's FTSE 100 index <.FTSE>, Germany's DAX <.GDAXI> and France's CAC 40 <.FCHI> were up 0.5-0.6 percent. (Editing by Mike Nesbit)