* FTSEurofirst 300 up 0.8 percent after Friday's 4-week low
* Telenor up after merger deal for unit; supports telecoms
* Banks, miners up
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By Simon Falush
LONDON, Oct 5 (Reuters) - European shares ended 0.8 percent higher on Monday as better-than-forecast data in the United States and Europe helped lift banks, while telecoms were boosted by merger activity between Telenor and Alfa Group.
The FTSEurofirst 300 index of top European shares closed up 0.8 percent at 971.21 points, after falling for three sessions in a row.
The index, which slumped 45 percent last year, is up 17 percent in 2009 and has surged over 50 percent since hitting a record low in early March.
Data on both sides of the Atlantic also reassured investors after non-farm payrolls data contributed to a 1.9 percent fall on Friday.
The U.S. service sector expanded in September at a faster pace than expected, with the Institute for Supply Management's services index coming in at 50.9, compared to a forecast of 50.
Markit's Eurozone Services Purchasing Managers' Index of around 2,000 companies showed the euro zone's services economy returned to growth for the first time in 16 months in September at a slightly better rate than first expected, but job losses grew.
Banks, which are sensitive to changes in risk appetite, gained. Barclays, HSBC, BNP Paribas and Deutsche Bank added 0.5-1.7 percent.
Q3 EYED
However, investors said sentiment was still relatively fragile and third-quarter results from the U.S. companies, which get under way this week with aluminium giant Alcoa, will determine where share prices head.
"Investors will be looking at what guidance companies will give for next year. I think they will disappoint so it will be a case of one step forward, one step back," said Heinz-Gerd Sonnenschein, equity markets strategist at Postbank, in Bonn.
Miners advanced after RBS upgraded its outlook for metals prices and said sovereign wealth funds might take an interest in the sector.
BHP Billiton, Anglo American, Antofagasta, Rio Tinto, Xstrata and Eurasian Natural Resources rose 2 percent to 4.7 percent.
Telenor shares jumped 14.6 percent after the company and its key partner in Russia, the Alfa Group, agreed to merge their Russian and Ukrainian holdings into a New York-listed mobile operator worth over $23 billion.
The news helped the telecom sector, with TeliaSonera, Mobistar, Vodafone, Telefonica adding 0.9-3.5 percent.
Drugmakers shrugged off early weakness, with AstraZeneca up 0.8 percent, boosted as a new diabetes drug has been approved for sale in Europe.
Novartis, Sanofi-Aventis and Shire added 0.2-2 percent.
ArcelorMittal rose 1.1 percent after its chairman and main owner, Lakshmi Mittal, told The Financial Times newspaper it was close to pulling out of a $20 billion plan to build two steel plants in India due to difficulties buying land.
Energy stocks were among a limited number of stocks in negative territory, pressures as crude fell below $69 per barrel.
Royal Dutch Shell, Total and Petroplus fell 0.4-0.5 percent.
Across Europe, Britain's FTSE 100 index, Germany's DAX and France's CAC 40 rose 0.7-0.8 percent. (Additional reporting by Atul Prakash; Editing by Dan Lalor)