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Banks rebound from falls after Portuguese auction

* Marks & Spencer gains after sales beat forecasts

* For up-to-the-minute market news, click on [STXNEWS/EU] By Joanne Frearson

LONDON, April 6 (Reuters) - European shares gained by midsession on Wednesday as banks recovered from earlier session falls on the back of a successful Portuguese debt auction and brokers said there was long-term upside for key indexes in Europe.

By 1141 GMT, the pan-European FTSEurofirst 300 . index of top shares was up 0.5 percent at 1,149.23 points after being as low as 1,140.20 earlier, but off its 2011 high made in February.

"The sentiment is bullish, European indices are still below the highs of this year and have further to catch up," Angus Campbell, head of sales at Capital Spreads, said. "We are still seeing momentum taking us higher."

Banks featured among the best performers after a successful auction of Portuguese debt. Yields rose sharply from previous auctions last month, intensifying pressure from local lenders and ratings agencies to seek a bailout, but traders said this had already been priced into the market.

The STOXX Europe 600 banks index .SX7P rose 1.6 percent with Barclays (BARC.L), which has exposure to up 2.5 percent.

Portugal's PSI 20 .PSI20 pared some of its earlier losses but was still down 0.2 percent. In other peripheral markets, Spain's IBEX 35 was up 0.6 percent and Italy's benchmark rose 0.7 percent.

Elsewhere on the upside, retailers were in demand, with Marks & Spencer (MKS.L) jumping 5.5 percent after Britain's biggest clothing retailer beat sales forecasts. [ID:nLDE73506Q]

BOFA MERRILL LYNCH POSITIVE

Adding to the positive mood was a Bank of America Merrill Lynch note saying was its preferred play in Europe, though it trimmed modestly its "overweight" position on global equities."

Although Merrill analysts said Brent crude being persistently above $130 a barrel could create severe economic damage, they added: "The economic recovery currently underway, coupled with relatively easy monetary policy, should continue to boost corporate profits and commodity prices.

"In the absence of further shocks, we expect the recovery to broaden, and we maintain our 'underweight' in fixed income and cash," they added.