European shares extend rally after China rate cut

* FTSEurofirst 300 up 1.3 pct, hits seven-week high

* China rate cut is its first in more than two years yrs

* Comments from ECB's Draghi also boost sentiment

By Blaise Robinson

PARIS, Nov 21 (Reuters) - European stocks extended an early rally on Friday morning, led by mining shares after China's central bank cut its benchmark interest rate for the first time in more than two years in an attempt to lift its cooling economy.

European mining shares, strongly affected by China's economic growth, featured among the top gainers, with Rio Tinto (Xetra: 855018 - news) up 3.9 percent and BHP Billiton (NYSE: BBL - news) 2.9 percent. The STOXX basic resources sector index rose 3.4 percent.

"It comes right after China's disappointing PMI figures showing that manufacturing activity is getting dangerously close to contraction," said Alexandre Baradez, chief market analyst at IG France.

"China's central bank is now following the path of the Fed, the ECB and the BoJ. Central banks are really driving markets."

China's rate cut was in response to stalled factory growth and continued weakness in the property market, which are dragging on broader activity and curbing demand for everything from furniture to cement and steel.

"This comes as a surprise from China's central bank. They've been reluctant to use rates to boost the economy because of fears of fuelling a credit bubble, so this shows that they are increasingly concerned about the economic outlook," Saxo Bank trader Andrea Tueni said.

At 1125 GMT the FTSEurofirst 300 index of top European shares was up 1.4 percent at a seven-week high of 1,375.18 points.

European stocks had already gained ground after comments from European Central Bank chief Mario Draghi reignited speculation that the ECB will inject more monetary stimulus into the euro zone economy.

Speaking at a congress in Frankfurt, Draghi highlighted weak economic activity indicators from the bloc and said the central bank would broaden the size, pace and composition of its asset purchase programme if needed.

Euro zone banks, which have a high exposure to the region's economy and significant holdings of sovereign debt, rose 2.5 percent.

Italy's Banco Popolare was up 4.8 percent and France's Societe Generale (Paris: FR0000130809 - news) up 2.8 percent.

Around Europe, UK's FTSE 100 index was up 0.9 percent, Germany's DAX index gained 1.8 percent and France's CAC 40 rose 1.6 percent.

French conglomerate Bouygues (Other OTC: BOUYF - news) rose 3.7 percent after the chief executive of Altice said the group is open to buying smaller rival Bouygues Telecom.

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 Francesco Canepa; Editing by David Goodman)