Europe shares rally in biggest rise for 3 years; Greece reverses early fall

* FTSEurofirst 300 up 2.8 pct

* Greek stocks rally on politician's comments

* Oil stocks rebound, led by shorted stocks

* Banks rally on Fed's patient approach (Recasts, adds quotes)

By Alistair Smout

LONDON, Dec 18 (Reuters) - European stocks surged on Thursday, with the market supported by a rise in Greek shares after the leader of the main opposition party said he was committed to keeping Greece in the euro should his leftist party take power next year.

A rebound in oil, a dovish statement from the Federal Reserve and relative calm in Russian markets helped spur European shares towards their strongest daily gain in three years.

The FTSEurofirst 300 index of top European shares was up 2.8 percent at 1,353.52 points, its biggest rise since November 2011, extending gains after Greek stocks reversed an early fall.

The Athens Composite Index erased earlier losses to trade 1.5 percent higher after the leader of Greece's radical leftist party Syriza, Alexis Tsipras, told Reuters he wanted a negotiated debt relief solution with the European Union and to keep the country in the euro currency bloc.

Greek markets have been knocked by the prospect of a general election if parliament fails to elect a new president by the end of the year, with the prospect of a Syriza victory in a popular vote raising questions over the country's EU membership.

A poll on Wednesday showing that Syriza had extended its lead over the government party helped push the local equity index as much as 3 percent lower in early trade.

"The Greek election is maybe the elephant in the room over the festive period but we have already seen a significant risk premium built into equities so any favourable outcome is likely to be proceeded by a sizeable relief rally" Jonathan Roy, partner at London-based Charles Hanover Investments, said.

Oil companies rose, with Norway's energy services firm Seadrill up 8.1 percent to top the index, as Brent crude jumped to $63 percent per barrel.

The STOXX 600 Oil & Gas sector was up 2.9 percent, but remains down more than 18 percent since the beginning of October. Many of the stocks in the sector are heavily shorted and positioned for a squeeze higher, traders said.

"Oil stocks have been hard hit, so when sentiment on the sector starts to turn around, the first place for investors to look is those stocks that have been heavily beaten down," Chris Beauchamp, market analyst at IG (LSE: IGG.L - news) , said.

Financials added the most points to the index, after Fed Chair Janet Yellen told a news conference the policy-setting Federal Open Market Committee was unlikely to hike rates for "at least a couple of meetings", meaning April of next year at the earliest.

"The statement was dovish, and the rise in rates will not be as early as people had expected. Traders have pushed out their expectations for the first rate hike," James Butterfill, global

In telecoms, Alcatel (Paris: FR0000130007 - news) -Lucent rose 7.8 percent on a report that it could merge with fellow telecom equipment firm Nokia.

Swisscom (Other OTC: SCMWY - news) sank to the bottom of the FTSEurofirst 300, down nearly 6 percent after news that French billionaire Xavier Niel had agreed to buy rival, private-equity-owned Orange (Taiwan OTC: 4554.TWO - news) Switzerland.

Europe bourses in 2014: http://link.reuters.com/pap87v

Asset performance in 2014: http://link.reuters.com/gap87v

Today's European research round-up

(Additional reporting by Sudip Kar-Gupta; Editing by Robin Pomeroy)