European shares rose in early trade on Tuesday, adding to gains in the previous session as further evidence of global economic recovery boosted demand for riskier assets like equities.

U.S. data on Monday showed its services sector expanded for the first time since 2008, while an interest rate rise by Australia's central bank signalled some policymakers were confident the recovery was gathering pace.

By 0806 GMT the FTSEurofirst 300 .FTEU3 was up 0.8 percent at 979.06 points, after closing 0.8 percent higher on Monday.

The index, which posted its best quarterly performance in nearly 10 years in the three months to the end of September, had started the fourth quarter on shaky ground after soft data shook confidence.

But the U.S. services data once again led investors to believe a significant recovery was coming through.

Banks .SX7P, typically strong beneficiaries of recovering risk appetite, were among the strongest performers.

Barclays (BARC.L), HSBC (HSBA.L), Standard Chartered (STAN.L), BNP Paribas (BNPP.PA) and Deutsche Bank (DBKGn.DE) added 1 percent to 2.4 percent.

But Societe Generale (SOGN.PA) fell 0.7 percent after unveiling a 4.8 billion euro ($7.0 billion) capital hike to repay state support and pursue acquisitions, following domestic peer BNP Paribas in paying off aid received during crisis. 

U.S. equities gained about half a percent more after Europe closed (on Monday) ... and shares came off so much on Thursday and Friday that investors are turning an eye to bargain hunting, said Josh Raymond, market strategist at City Index.

Insurers were also supported by increasing optimism on the outlook for the global economy. Aegon (AEGN.AS), ING Groep (ING.AS), Legal & General (LGEN.L) and Prudential (PRU.L) rose up to 3 percent.

MINERS, ENERGY GAIN

Miners were firmer as a weaker dollar helped to boost metal prices. The U.S. unit was pressured by a British newspaper report that Gulf Arab states were in secret talks to end the use of dollars in oil trading.

A Saudi offical said the report was absolutely incorrect, while Russia's deputy finance minister, Dmitry Pankin, said the dollar had not been discussed.

Rio Tinto (RIO.L), Xstrata (XTA.L), Lonmin (LMI.L), Anglo American (AAL.L), Kazakhmys (KAZ.L) and Fresnillo (FRES.L) gained 2.2-4.7 percent.

Energy stocks were lifted as crude rose towards $71 per barrel. BG Group (BG.L), BP (BP.L), Royal Dutch Shell (RDSa.L),and Total (TOTF.PA), Tullow Oil (TLW.L) and ENI (ENI.MI) added 0.1-1.6 percent.

Around Europe, Britain's FTSE 100 .FTSE, Germany's DAX .GDAXI and France's CAC .FCHI were up 0.4-0.6 percent.

Tesco (TSCO.L), the world's third largest retailer, fell 1 percent after posting slightly weaker than expected second-quarter sales, offsetting first-half profit towards the top end of forecasts. 

Defensive pharmaceutical stocks were among the main drags on the index, as investors repositioned towards more cyclical stocks. AstraZeneca (AZN.L), GlaxoSmithKline (GSK.L), Merck (MRCG.DE) and Sanofi-Aventis (SASY.PA) fell 0.3-1.2 percent.

Shire (SHP.L) was among the top fallers, shedding 2.3 percent after UBS cut its rating for the drugmaker to 'neutral' from 'buy', citing valuation grounds.

Other stocks seen as relatively defensive plays like Unilever (ULVR.L) and Vodafone (VOD.L) also fell, down 0.8 percent and 0.5 percent respectively.