(Reuters) - European shares rose close to seven-year highs on Tuesday as better than expected German retail sales further buoyed investors days before the European Central Bank kicks off a trillion-euro bond buying program.

The gains follow a rise in Asia .MIAPJ0000PUS and another record day on the Wall Street. U.S. stocks futures ESc1 pointed to a flat start.

Euro zone government bond yields were slightly higher but remained near record lows as investors anticipated the ECB's purchases. The central bank will finalize the details of its scheme at its meeting on Thursday and may start buying immediately afterwards.

German retail sales rose 2.9 percent month-on-month and 5.3 percent year-on-year in January, more than economists had forecast, helping lift the DAX stock index 0.2 percent.

"Euro zone economic surprises have veered from extremely negative to extremely positive in very short order," said Eric Lascelles, chief economist at RBC Global Asset Management.

"Euro zone prospects may be turning up."

Merger speculation in the Portuguese banking sector also supported the European market. Shares in Banco BPI and Banco Comercial Portugues were up 6-8 percent.

The pan-European FTSEurofirst 300 index was up 0.1 percent at 1,562.36 points, just off Monday's seven-year high.

"German retail sales got off to a very strong start in the new year on the back of (lower) energy prices and no doubt due to the (hike in) minimum wage," said Norbert Wuthe, senior analyst at Bayerische Landesbank.

The dollar pulled back from an 11-year high against a basket of major currencies, coming under pressure against the yen after Etsuro Honda, an economic adviser to Prime Minister Shinzo Abe, told the Wall Street Journal that dollar/yen may be at the "upper limit of comfort zone".

The dollar index was last 95.493, having risen as high as 95.516 in Asian trading.

"Honda's comments reflect the latest view of the government and come ahead of a proposed visit by Abe to the United States in April," said Yujiro Goto, currency strategist at Nomura.

"They might not want the yen to weaken too much ahead of the visit. So in the short term the yen's weakness could slow, but over the medium term it will still weaken."

Some countries, especially in the G7, had complained about sharp yen weakness in early 2013, just as Abe came to power and the Bank of Japan was about to embark on a huge quantitative easing program to get inflation back to 2 percent.

The Australian dollar rallied against its U.S. counterpart after the RBA opted to leave its policy rate unchanged at record low of 2.25 percent, surprising some who had looked for another cut after a similar move in February.

The Aussie was 0.5 percent higher at $0.7803, bouncing from $0.7751 before the decision.

The euro weakened slightly to $1.1164.

Brent crude oil prices were steady, while spot gold recovered after a brief fall below $1,200 an ounce.