European shares extend rally to four days on debt hope

* FTSEurofirst 300 closes up 1.7 pct

* Autos, miners among biggest gainers

* CSM plunges on profit warning

By Brian Gorman

LONDON, Oct 10 (Reuters) - European shares rose for a fourth day on Monday, on optimism a plan devised by France and Germany would help resolve the euro zone debt crisis and shore up the region's banking sector.

Stocks rose across the board in low volumes, with economically sensitive sectors performing best as policymakers' plans lifted sentiment. The autos sector was up 4.4 percent while a basic resources index rose 2.5 percent.

Over the weekend, German Chancellor Angela Merkel and French President Nicolas Sarkozy said they would work out a plan to recapitalise European banks, come up with a sustainable answer to Greece and accelerate economic coordination in the euro zone by a G20 summit in Cannes on Nov. 3-4.

The FTSEurofirst 300 index of top European shares rose 1.7 percent to 963.89 points, the highest close in more than five weeks. The benchmark has gained 13 percent since a low on Sept. 23, but is still down 14 percent in 2011.

Some strategists were sceptical due to the lack of detail, and remained downbeat on equities.

"It is a relief rally, not surprising given how bearish the last five or six weeks have been," said Michael McNaught-Davis, head of international equities at Scottish Widows, which has 145 billion pounds ($227 billion) under management. "There is still some bitter medicine to be taken. It will be difficult to unwind all this debt without economies falling into recession."

A move to nationalise Franco-Belgian bank Dexia was seen as an indication governments would step in and keep large lenders from going under. Dexia shares fell 4.7 percent.

Elsewhere, Greek bank stocks fell 10.4 percent after the country's central bank said it had activated a bank rescue fund to save Proton Bank, effectively nationalising the small lender.

Erste Group Bank , emerging Europe's second-biggest lender, fell 9.2 percent after saying it would lose up to 800 million euros ($1 billion) this year and not pay a dividend after taking hits on foreign-currency loans in Hungary and euro zone sovereign debt.

Gainers in the banking sector included UniCredit , which has low exposure to Greece, up 12.2 percent.

"We would still avoid the banking sector, with a lot more write-offs to come, with exposure to Greece, and also I suspect on Italy and Spain," McNaught-Davis said.

Trading volumes were low at 77 percent of the benchmark index's 90-day average. U.S. government offices and the bond market were closed for the Columbus Day holiday, which tends to produce lighter-than-usual equities volume on Wall Street, and bring down European volumes.

EARNINGS SEASON

Some strategists were also cautious ahead of a batch of U.S. earnings releases. Aluminium company Alcoa kicks off third-quarter reporting season on Tuesday. Banking heavyweight JP Morgan is among those reporting later in the week.

"The earnings season could be a tough one and you will see some disappointments. Some analysts' expectations are still too high," McNaught-Davis said.

The benchmark index's next resistance levels are at 978.57 points, which represents a high reached on Sept. 1, and 983.41 points, the 50 percent retracement of the July 22-Sept. 23 nosedive.

"We are getting signals on a lot of fronts that the end of the crisis is coming. The rally in Bunds is exhausted, shaping up a triple-top pattern on the chart, and we are getting a 'sell' signal on the volatility," said Valerie Gastaldy, head of Paris-based technical analysis firm Day By Day.

Bund futures fell below 135 to their lowest level since early September, after failing to convincingly break above 139 on three occasions over the past month, signalling a potential change in trend.

European stocks and Bunds tend to move in opposite directions, with the 25-day rolling correlation between the broad STOXX 600 index and Bunds futures at -0.78.

Among individual shares, Dutch bakery ingredients company CSM plunged 20 percent after saying weak consumer spending and higher raw material costs had put its full-year 2011 guidance out of reach, and it would restructure the business to cut costs. (Additional reporting by Blaise Robinson; Editing by Dan Lalor) (brian.gorman@thomsonreuters.com; +44 20 7542 9128; Reuters Messaging: brian.gorman.thomsonreuters.com@reuters.net))

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