European shares extend Friday's rally; helped by M&A

* FTSEurofirst 300 up 0.2 pct, Euro STOXX 50 up 0.7 pct

* Friends Life surged 7.9 pct on Aviva (Other OTC: AIVAF - news) deal

* Market supported by biggest M&A wave in 7 years

By Blaise Robinson

PARIS, Nov 24 (Reuters) - European shares inched higher in early trading on Monday, as mergers and acquisitions fever helped the market extend the previous session's sharp rally.

Shares (Frankfurt: DI6.F - news) in UK insurer Friends Life surged 7.9 percent after rival Aviva agreed terms on a possible deal to buy it for 5.6 billion pounds ($8.8 billion). Aviva stock slipped 3.7 percent.

Bucking the trend, shares in Petrofac Ltd sank 24 percent after the oil and gas services firm unveiled profit targets well below analyst forecast, highlighting how the sector is struggling with plummeting crude oil prices.

At 0848 GMT, the FTSEurofirst 300 index of top European shares was up 0.2 percent at 1,388.15 points.

The index surged 2.1 percent on Friday, a sharp rally sparked by dovish comments from European Central Bank President Mario Draghi and a surprise interest rate cut in China.

The prospect of further measures from the ECB to support the region's economy continued to weigh on the euro on Monday, falling to near 28-month lows below $1.24 against the dollar . The single currency has fallen nearly 12 percent since early May, a slide seen as positive for European exporters' earnings.

For Jean-Louis Cussac, the head of Paris-based firm Perceval Finance, the market is currently driven by central banks.

"Fund managers have not been selling equities during the recent pull-backs because of the 'ECB put': if the situation worsens, the central bank is ready to take further steps," he said.

"The market remains volatile, and investors should be cautious. Despite the rise, there's no significant buying interest, no real inflows. I still recommend playing this market via options."

Around Europe, UK's FTSE 100 index was down 0.04 percent, Germany's DAX index up 0.2 percent, and France's CAC 40 up 0.6 percent. The euro zone's blue-chip Euro STOXX 50 index was up 0.7 percent.

The FTSEurofirst 300 index of top European shares has surged 14 percent since a low hit in mid-October, lifted by expectations of further measures by the ECB to support the euro zone economy, as well as by a recent raft of M&A deals.

Global M&A activity in 2014 has hit a level not seen in seven years, according to Thomson Reuters data, with a flurry of deals in the struggling oil and gas sector as a plunge in crude oil prices below $80 a barrel has sparked the biggest consolidation wave in the sector since the 70's.

Europe bourses in 2014: http://link.reuters.com/pap87v

Asset performance in 2014: http://link.reuters.com/gap87v

Today's European research round-up (Editing by Toby Chopra)