European shares pick up ahead of crucial Greece talks

* FTSEurofirst 300 closes up 0.1 pct

* K+S surges after Potash offer, supports DAX

* Tesco (Xetra: 852647 - news) top FTSEurofirst gainer after sales beat forecasts (Uppdates with closing prices)

By Alistair Smout and Lionel Laurent

LONDON, June 26 (Reuters) - European stocks rose in afternoon trading on Friday, as optimism for some kind of progress on Greece picked up ahead of weekend talks designed to push Athens into a last-minute cash-for-reform deal with international creditors.

Greek markets rallied and European equities were set for a positive end to the week as European Commission President Jean-Claude Juncker described the mood as "quite optimistic but not over-optimistic". "We have made progress ... There is a real chance of concluding an agreement," he said.

While short-term risks have ratcheted up, BofA-Merrill strategists said European equities were set to rise as any failure to reach agreement would likely see more, not less, aggressive intervention from authorities including the European Central Bank.

"Further out, we continue to see European equity markets higher ... The fallout from any Greek default or even 'Grexit' would be containable," they wrote in a note to clients.

The pan-European FTSEurofirst 300 index closed up 0.1 percent to 1,574.08 points. The euro zone's Euro STOXX 50 was up 0.3 percent, while Greek shares surged 2 percent.

A rally has left the FTSEurofirst 300 up over 2 percent on the week, as optimism had built that a deal may be found.

While an agreement on Saturday is possible, traders said the high amount of uncertainty ahead of the negotiations made investors unwilling to leave themselves exposed heading into the weekend.

"I think most people believe some sort of deal will be found, but coming into the weekend, when we're already overheated, why take on the extra risk over the weekend?" Mike McCudden, head of retail derivatives at Interactive Investor, said.

"Generally investors will be avoiding equity because of the event risk over the Greek situation."

Germany's DAX was up 0.2 percent, with K+S the best-performing index component by a mile.

The potash producer rallied 30 percent after it said it has received a takeover proposal from larger Canadian fertiliser producer Potash Corp of Saskatchewan Inc.

Sources said the offer was just over 40 euros a share. The rally took it to 38 euros, and added 21 points to the DAX.

Britain's biggest supermarket Tesco was the biggest riser on the FTSEurofirst 300, up 2.7 percent after it said it saw signs of an improvement in core markets and reported a better than expected performance, even as sales still declined.

"(It's a) strong set of numbers and they're starting to see evidence of stabilisation," Atif Latif, director of trading at Guardian Stockbrokers, said.

"Margin pressures should ease into the latter part of the year and with asset sales, it's still a distinct possibility that they could avoid the need for a rights issue."

Europe bourses in 2015: http://link.reuters.com/pap87v

Asset performance in 2015: http://link.reuters.com/gap87v

Today's European research round-up

(Editing by Catherine Evans and Toby Chopra)