European shares end higher as mining, telecoms stocks gain

* FTSEurofirst 300 index up 0.7 pct

* Mining and telecoms stocks among top gainers

* Next (Other OTC: NXGPF - news) shares fall after trading update (Adds details, closing prices)

By Danilo Masoni and Atul Prakash

MILAN/LONDON, Jan 5 (Reuters) - European shares closed up on Tuesday, supported by a rally in mining and telecoms stocks, though worries over China persisted a day after poor Chinese factory data triggered a global stock market sell-off.

Traders also cited talk that weaker-than-expected inflation data might lead the European Central Bank to do more to stimulate the euro zone's economy as a supporting factor.

The pan-European FTSEurofirst 300 index ended up 0.7 percent, after falling 2.5 percent on Monday, when a 7 percent decline in Chinese markets led to its biggest one-day drop since early December. However, some investors remained cautious.

"Short-term uncertainty continues and stocks could reach new lows in the next few weeks, possibly creating some interesting buying opportunities," said Alessandro Allegri, CEO of Italian asset manager Ambrosetti Asset Management.

"The main reason for the uncertainty is China, given that company numbers and the macroeconomic picture in Europe and the U.S (Other OTC: UBGXF - news) . have not changed."

Regulators tried to bolster China's stock markets on Tuesday, with the central bank pouring cash into the money market system and the securities regulator suggesting it might restrict share sales by major shareholders.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed 0.3 percent higher.

The STOXX Europe 600 Basic Resources index rose 1.8 percent, the top sectoral gainer, as prices of key industrial metals rose after slumping in the previous session. Anglo American, BHP Billiton (NYSE: BBL - news) and Glencore (Amsterdam: GX8.AS - news) were up by between 1.3 percent and 3.5 percent.

Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said the market was gaining some support from the potential for further M&A activity among telecoms company.

"More deals are likely to come as companies look for synergies and cost efficiencies. This is an additional bonus for a relatively defensive sector in the current market environment," Gijsels said.

In addition, Orange (Taiwan OTC: 4554.TWO - news) confirmed it was in renewed talks about a merger with rival Bouygues Telecom. Bouygues (Other OTC: BOUYY - news) rose 0.4 percent, Altice (Other OTC: ATSVF - news) climbed 9.3 percent and Numericable surged 12.3 percent. Orange was also up 0.7 percent.

British clothing retailer Next fell 4.6 percent after reporting disappointing sales for Christmas. It (Other OTC: ITGL - news) blamed unusually warm weather in November and December, poor stock availability and increased online competition.

Volkswagen (Other OTC: VLKAF - news) fell 3.9 percent to six-week lows after the U.S. Justice Department sued the German car maker for up to $90 billion for allegedly violating environmental laws. (Editing by Larry King)