Europe shares extend rally on U.S. jobs, ECB policy talk

* FTSEurofirst 300 up 0.7 pct, Euro STOXX 50 up 0.9 pct

* U.S. payrolls reassure on economic growth rate

* Report on potential European QE boosts peripherals

* Lafarge (Munich: CIL.MU - news) , Holcim (Other OTC: HCMLF - news) surge on report of merger talks

By Blaise Robinson

PARIS, April 4 (Reuters) - European stocks rose on Friday, gaining ground for the ninth straight session, as U.S. jobs data suggested a solid pace of hiring for a second month in a row.

A report saying European Central Bank models suggest that 1 trillion euros of asset purchases would raise inflation by 0.2 to 0.8 percentage point spurred a late rally in euro zone peripheral stocks, with Madrid's IBEX up 0.9 percent and Milan's FTSE MIB up 0.8 percent.

The closely-watched non-farm payrolls increased by 192,000 last month, just shy of the 200,000 forecast, after rising 197,000 in February, while the unemployment rate stayed at 6.7 percent.

"It's mostly the positive revision for February that's a good surprise. It removes doubts about the pace of U.S. growth," said Alexandre Baradez, chief market analyst at IG France.

"But all this has been priced in already by the market, and with Wall Street trading at record highs without clear positive catalysts ahead, stocks may soon be ripe for a correction. If there's a pull-back in New York (Frankfurt: HX6.F - news) , Europe won't be immune."

At 1437 GMT, the FTSEurofirst 300 index of top European shares was up 0.7 percent at 1,354.30 points, gaining ground for the ninth session in a row and hitting its highest level in 5-1/2 years.

The euro zone's blue-chip Euro STOXX 50 index was up 0.9 percent at 3,236.33 points.

European stocks have rallied sharply in the past three weeks, partly on expectations the ECB will act to counter low inflation but also as tensions between Russia and the West over Ukraine have eased.

The rally, led by shares from euro zone economies such as Italy and Spain where investors anticipate recovery, has however pushed a number of indexes very close to 'overbought' territory. Charts show the Euro STOXX 50's 14-day relative strength index (RSI), a widely-used momentum indicator, reaching 69, with 70 and above considered 'overbought'.

Shares in European cement makers Lafarge and Holcim surged after Bloomberg reported that the companies were in talks to explore a merger, citing people familiar with the matter. Lafarge gained 7.7 percent while Holcim climbed 4.5 percent higher.

"It's good for the market. Things are boiling up on the M&A front, not only in the telecoms sector but also in the construction sector," said Clairinvest fund manager Ion-Marc Valahu.

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 in London; Editing by Ruth Pitchford)