European shares end at 5-year highs, DAX hits record

* FTSEurofirst 300 up 1.1 pct, Euro STOXX 50 up 1.3 pct

* FTSEurofirst up 5.3 pct in 6 sessions, up 16 pct ytd

* Germany's DAX hits fresh record high

* Christmas sales season sees retail stocks rise

By Blaise Robinson

PARIS, Dec 27 (Reuters) - European shares resumed their sharp year-end rally on Friday after the Christmas break, closing at their highest level in five years and with Germany's blue-chip DAX index hitting a record high.

The pan-European FTSEurofirst 300 index ended 1.1 percent higher at 1,314.29 points in thin holiday volume, its highest closing level since mid-2008. The benchmark index, which has surged 5.3 percent since Dec. 17, is on track to post a gain of 16 percent on the year.

"The market feels unstoppable right now with growth coming back, inflation under control and central banks ultra supportive. My main worry is to what extent this is now priced into the market already," said Lex van Dam, hedge fund manager at Hampstead Capital.

The euro zone's blue-chip Euro STOXX 50 index advanced 1.3 percent to 3,111.37 points, a five-year closing high, while the DAX added 1.1 percent, to end at a fresh record high of 9,589.39 points.

The DAX has risen 26 percent since the start of 2013, strongly outperforming the pan-European FTSEurofirst 300.

This partly reflects Germany's role as the powerhouse behind the economic recovery in the euro zone, with data this month showing German consumer morale had reached its highest level in nearly 6-1/2 years.

TIME TO TAKE PROFITS?

"We always have a preference for buying Germany whenever there is a reason to buy any European equity market since the euro currency works most in favour of Germany," said Richard Edwards, head of trading and research firm HED Capital.

However, Edwards said the DAX's rally may peter out in the near term and he recommended trimming back positions on that index in order to book profits.

"Be very careful with long positions here and consider taking profits very soon," he added.

Technical analysis charts show the DAX's relative strength index (RSI), a widely used momentum indicator, hitting 70.5, with 70 and above signalling "overbought" conditions.

Around Europe, Britain's FTSE 100 index gained 0.9 percent, France's CAC 40 rose 1.4 percent, Spain's IBEX added 0.8 percent and Italy's FTSE MIB was up 1.4 percent.

"This is the traditional Christmas rally, when stocks go up in the last two weeks of December. Adding to that, global investors are scooping up European shares, seen as cheaper than U.S. shares, betting that 2013 was the low point for the European economy and that things are set to improve next year," FXCM (NYSE: FXCM - news) analyst Vincent Ganne said.

Retail stocks performed well on Friday in light of the Christmas holiday sales season, with France's Kering (Milan: KER.MI - news) up 1.9 percent and Britain's Sainsbury (EUREX: SBRF.EX - news) up 1.8 percent.