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By Lincoln Feast

LONDON, April 5 (Reuters) - European shares eked out small gains on Monday as investors bet an improving global economy will power company profits higher this year, but trade was thin ahead of the Easter holiday.

Technology stocks <.SX8P> were in favour, with chip maker Infineon <IFXGn.DE> gaining two percent and Dutch chip equipment maker ASML <ASML.AS> up 1.5 percent following strong industry data on Friday.

By 0912 GMT, the FTSE Eurotop 300 index <.FTEU3> of pan-European blue chips was 0.1 percent higher at 1,011.2 points.

Rising and falling stocks were evenly balanced, while turnover was modest as a number of participants took holidays ahead of Easter celebrations at the end of the week.

The narrower DJ Euro Stoxx 50 index <.STOXX50E> climbed 0.3 percent to 2,893.6 points.

Stocks dived in the wake of last month's deadly train bombings in Madrid as security worries compounded doubts about the strength of the economic recovery.

The recovery has been swift, however, and analysts said European stocks remain good value.

"It is normal for equity markets to experience a correction or tread water when economic momentum indicators peak -- as they have recently," said Goldman Sachs strategist Peter Oppenheimer.

"While markets main remain choppy and lack direction short term, stronger profit numbers and continued economic growth should propel markets higher still this year."

JOBS BOOST

Stocks jumped on Friday after data showed U.S. non-farm payrolls climbed to 308,000 in March, the biggest gain since April 2000 and nearly triple the 103,000 expected on Wall Street.

The news boosted equities around the globe, lifting the dollar and sending government bonds tumbling on expectations that the U.S. Federal Reserve will raise interest rates sooner rather than later.

"Bond yields rising will give way to money flowing into equities from that asset and that will be the initial phase. The phase to worry about valuations is still some way off," said Gareth Evans, a European equities strategist at ING Barings, dismissing concerns that the prospect of rising interest rates derailing the rally.

"Our long-standing overweights have been in telecoms, media and insurance -- those are the three sectors we think are best placed out-perform in a rising market."

On Friday, the Dow Jones industrial average <.DJI> closed 0.9 percent higher at 10,470.6 points, and the tech-laden Nasdaq Composite <.IXIC> ended up 2.1 percent at 2,057.2 points.

The main first-quarter earnings season kicks off in the United States later this week, with aluminium producer Alcoa (nyse: AA - news - people) the first Dow component to report, on Tuesday. Internet giant Yahoo (nasdaq: YHOO - news - people) follows on Wednesday, with conglomerate General Electric (nyse: GE - news - people) on Thursday.

Investors will be looking to the results as a guide for European company earnings, with analysts currently expecting profits in Europe to rise by around 20 percent in 2004.

BRITISH BANKS DIP

British banks were weaker ahead of the Bank of England's interest rate meeting on Thursday, with markets braced for a possible rise in interest rates. Royal Bank of Scotland <RBS.L> was down 1.1 percent while top mortgage lender HBOS <HBOS.L> fell 0.9 percent.

Elsewhere, German drugmaker Altana <ALTG.DE> was down 1.7 percent on fears its flagship drug, pantoprazole, may face a patent challenge from a generic rival in the United States.

British supermarket operator Sainsbury <SBRY.L> rose as much as 2.5 percent after a weekend newspaper reported that U.S. private equity firm Kohlberg Kravis Roberts & Co. is interested in making a bid for it. A source told Reuters KKR was not considering a bid, trimming gains in Sainsbury to one percent.

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