Encouraging data helps European shares to finish higher

* FTSEurofirst 300 ends 0.3 pct higher after early losses

* Encouraging European data supports market

* Chinese data weighs on resource-related shares

By Atul Prakash

LONDON, March 24 (Reuters) - European shares climbed higher to end just below a recent 7-1/2-year high on Tuesday, with forecast-beating business surveys from Germany and France offsetting poor Chinese factory data.

Equities recovered from early falls as purchasing managers' surveys showed Germany's private sector grew in March at its strongest rate since July and France's private sector expanded for the second straight month.

"Today's data further shows that Europe is on the road to recovery and we are heading in the right direction. This is also supportive of our view that European earnings are going to deliver an upside surprise in 2015," HSBC Global Research equity strategist Robert Parkes said.

"Companies are not cheap any more, but valuations are not yet stretched and we see more upside potential for European equities in the coming months," he added.

Germany's DAX rose 0.9 percent, outperforming the FTSEurofirst 300 index of top European shares that closed 0.3 percent higher at 1,604.36 points after falling to 1,592.51 earlier on the back of poor Chinese factory sector data. The FTSEurofirst hit its highest since mid-2007 on Friday.

Resource-related shares fell, with the European sector index down 1.2 percent. Rio Tinto (Xetra: 855018 - news) and Anglo American (LSE: AAL.L - news) slid 2 percent and 1.8 percent respectively after data showed activity in China's factory sector dipped to an 11-month low in March.

European stocks have rallied since the start of the year, with Germany's DAX up about 20 percent and on track to record its best quarter since late 2003, as global investors bet that a weaker euro would boost the region's economy and corporate earnings.

"The environment for the euro zone is getting extremely positive: low interest rates, a weakening euro and falling commodity prices, coupled with strong action from the ECB," said Christian Jimenez, fund manager and president of Diamant Bleu Gestion, in Paris.

"The only big risk seen in the medium term is the prospect of a rate hike by the Fed, but that's mostly priced in already."

Across Europe, Greek stocks rose 3.7 percent after Athens said it would present urgently needed reforms to its euro zone partners by Monday. A source familiar with the matter told Reuters that Greece will run out of money by April 20 unless it gets fresh aid from creditors.

Among other sharp movers, plumbing supplies group Wolseley (EUREX: WLYH.EX - news) , which hit an eight-year high on Friday, fell 2.7 percent after posting a smaller-than-expected increase in first-half earnings.

Spain's Telefonica was up 0.7 percent. The company said after the market close it had reached a definitive agreement to sell its British O2 unit to Hutchison Whampoa for 10.25 billion pounds ($15.24 billion), after a preliminary deal was outlined in January.

(Additional reporting by Blaise Robinson in Paris; Editing by Andrew Heavens and Susan Fenton)