Economic recovery optimism lifts European shares

* FTSEurofirst 300 rises after closing above 1,000 on Wed

* Global recovery hopes buoy financials, commodity stocks

* Weak Oracle quarterly results hurt software sector

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

By Dominic Lau

LONDON, Sept 17 (Reuters) - European shares rose in early trade on Thursday, extending the previous session's sharp gains, as renewed hopes of a global economic recovery buoyed demand for riskier assets like equities.

By 0742 GMT, the FTSEurofirst 300 <.FTEU3> index of top European shares was up 0.6 percent at 1,011.79 points. It rallied 1.4 percent on Wednesday to close above 1,000 for the first time since early October 2008.

The pan-European index has rallied nearly 57 percent since hitting a floor in early March, but is still down 13 percent from its level in mid-September 2008, before the bankruptcy of Lehman Brothers.

"Policymakers have made it plain that they are going to do everything they can to sort out this problem," Neil Dwane, European chief investment officer at Allianz Global Investors' RCM, said.

"Investors are now realising that interest rates are going to remain low, bond rates are going to remain low and therefore you might as well take risk, and at the moment there is only one place for you to take risk -- it's equities."

Banks <.SX7P>, which have soared 174 percent since early March, were in demand, with Barclays , HSBC , Natixis , Societe Generale , UBS and BNP Paribas up 1.1-4.4 percent.

Citigroup said in a note that it preferred sectors like financials and energy as they "should continue to benefit from an earnings recovery and are reasonably valued."

"After the biggest fall in over two decades, global 12-month forward earnings expectations have risen by almost 10 percent since May lows. It looks like we have entered the recovery phase of the profits cycle," the broker said.

Among energy stocks, BP , Royal Dutch Shell and Total added 0.8-0.9 percent. Oil steadied above $72 a barrel, taking a breather after a rise of more than 2 percent the previous day.

Tullow Oil surged 4 percent, extending Wednesday's 9.2 percent rise, after the oil explorer said it had struck what may turn out to be the largest oil find yet in a block it plans to partly sell-off in Uganda's Lake Albert basin.

Miners also firmed, with Rio Tinto , BHP Billiton , Anglo American , Xstrata , Kazakhmys and Randgold Resources up 0.6-2 percent.

Across Europe, Britain's FTSE 100 <.FTSE> rose 0.7 percent, Germany's DAX <.GDAXI> advanced 0.5 percent and France's CAC 40 <.FCHI> gained 0.6 percent. U.S. stocks rose for a third day on Wednesday, hitting fresh 2009 highs in a broad-based rally after data suggested a stronger-than-expected global recovery. Asian stocks hit their highest level in 13 months on Thursday.

U.S. August housing starts and building permits, along with the September Philly Fed index and the latest weekly initial jobless claims, will provide a further gauge of the state of the world's largest economy.

SAP, INFINEON DOWN

SAP , Software AG and Sage Group slipped 0.7-1.1 percent after Oracle Corp's quarterly software sales came in sharply below expectations, dashing hopes that corporate technology spending was rebounding. [ID:nN16146835]

Within the technology sector, Infineon lost 3.4 percent after Banc of America-Merrill Lynch downgraded the German chipmaker to "underperform" from "buy".

TomTom shed 3.6 percent after Banc of America-Merrill Lynch cut the navigation device maker to "underperform". The broker said it saw better alternatives in Garmin and Logitech , which rose 0.5 percent.

Among other individual movers, EADS advanced 5.8 percent, topping the FTSEurofirst 300 gainers, after Morgan Stanley upgraded the Airbus maker's parent to "overweight" from "equal weight".

British Airways climbed 3.5 percent after Goldman Sachs added the airline to its "conviction buy list".

Volkswagen added 0.6 percent. The Financial Times said Europe's largest carmaker was considering overhauling its trucks business in a move that could herald a tie-up with German truck maker MAN AG , whose shares gained 3.2 percent.

(Editing by Lin Noueihed)