* FTSEurofirst 300 ends 2.2 percent higher
* Australia's rate hike boosts recovery hopes
* Banks among top gainers; record high gold helps metals
By Atul Prakash
LONDON, Oct 6 (Reuters) - European shares ended sharply higher on Tuesday, boosted by financials and oils, as investors flocked into the market after Australia's move to raise rates revived expectations of a global economic recovery.
Record high gold prices and stronger base metals helped miners to record substantial gains ahead of the U.S. earnings season, which starts on Wednesday with aluminium giant Alcoa announcing its financial results.
The FTSEurofirst 300 index of top European shares closed 2.2 percent higher at 992.76 points after rising 0.8 percent on Monday on stronger-than-expected U.S. service sector data. The index, which slumped 45 percent last year, is up 19 percent in 2009 and has surged 54 percent since March lows.
Financial stocks were among the top gainers, with Standard Chartered, HSBC, Barclays, Lloyds, Royal Bank of Scotland, BNP Paribas, Societe Generale, KBC Groep and Credit Agricole rising between 1.6 and 15.4 percent.
"Yesterday we saw positive ISM data which came in much higher than expected and gave some reassurance regarding the economic recovery, after we had seen some disappointments in macro figures at the end of last week," said Tammo Greetfeld, an equity strategist at UniCredit in Munich.
"Australia raising interest rate could mean the authorities judge the recovery to be stable enough to allow for a lessening of monetary stimulus."
Australia's central bank raised its key cash rate by 25 basis points to 3.25 percent and heralded more to come, saying it was safe to row-back on stimulus now that the worst danger for the economy had passed.
Improved market conditions prompted French bank Societe Generale to launch a 4.8 billion-euro ($7.0 billion) rights issue to repay state support and fund takeovers, a week after BNP Paribas made a similar move to tap its investors for 4.3 billion euros.
Miners surged as spot gold hit a record high above $1,040 an ounce on a weaker dollar. BHP Billiton, Anglo American, Antofagasta, Xstrata and Eurasian Natural Resources surged 4.6 to 7.6 percent.
Rio Tinto surged 6.9 percent after Mongolia finally wrapped up a deal to develop one of the world's biggest untapped copper and gold deposits, signing off on Rio and Ivanhoe Mines' $3 billion Oyu Tolgoi mine.
OILS POWER ENERGY SHARES
Energy shares were in demand after crude prices rose 1.7 percent to trade above $71 per barrel as the dollar slipped against major currencies and after a U.S. government agency raised its forecast of world oil demand for the fourth quarter.
BP, Royal Dutch Shell, BG Group, Tullow Oil, Repsol, Total and StatoilHydro added between 1.7 percent and 8.4 percent.
"The recent decline has presented yet another buying opportunity for investors," said Angus Campbell, head of sales at Capital Spreads.
"Throughout this equity market recovery, each small retracement has been met by a flurry of buying and just when the bull run looks to be over, it takes another step up the ladder."
However, Tesco, the world's third-biggest retailer, fell 0.2 percent. It posted a first-half profit towards the top end of forecasts, but its second-quarter performance was nearer the bottom end of estimates.
Across Europe, Britain's FTSE 100 index, Germany's DAX and France's CAC 40 rose 2.3 to 2.7 percent.
Some analysts advised caution.
"It may have been another bumper session but it's worth noting that these latest gains have been driven by some very specific events," said Anthony Grech, strategist at IG Index.
"And with the Q3 earnings season 'officially' starting tomorrow in the U.S., a broad reversion certainly can't be discounted." (Editing by Karen Foster)