European shares extend year-end rally; DAX hits record

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

* FTSEurofirst up 5 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 year-end rally on Friday after the Christmas break, with Germany's DAX blue-chip index hitting a record high and regional indexes tracking all-time closing highs on Wall Street.

At 1515 GMT, the pan-European FTSEurofirst 300 index was up 0.9 percent in thin volume, at 1,311.57 points, and set to end the session at its highest closing level in five years. The benchmark index, which has surged 5 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 0.9 percent to 3,102.09 points, while the DAX added 0.8 percent and hit an intraday record high of 9,575.54.

The DAX has risen by around 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.

"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 69.6, with 70 and above signalling "overbought" conditions.

Around Europe, Britain's FTSE 100 index was up 0.6 percent, France's CAC 40 up 1.2 percent, Spain's IBEX up 0.5 percent and Italy's FTSE MIB up 1 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 1.5 percent and Britain's Sainsbury (EUREX: SBRF.EX - news) up 1.4 percent.