* Euro STOXX 50 up 0.9 pct, Greece's ATG index up 2.6 pct * Gain on prospects of pro-bailout win in Greek election * Risks focus shifts to creaking Spanish bank sector * Madrid's IBEX index drops 0.7 pct By Toni Vorobyova LONDON, May 28 (Reuters) - European equities rose on Monday, cheered by opinion polls suggesting Greece's pro-bailout parties will be able to form a government committed to keeping the country in the euro, but traders cautioned against prospects of an extended rally. The weekend polls went some way towards reassuring investors worried about a possible Greek euro zone exit in case of a leftist victory in the June 17 election - an event with unpredictable and potentially costly contagion risks for the other economies in the currency bloc and beyond. With European shares down 17 percent since mid-March and within sight of recent six-month lows, the cheap valuations allied to the poll news tempted some investors back. "Let the buying begin," said Justin Haque, pan-European sales trader at Hobart Capital Markets. The Athens bourse, which has plunged to levels not seen in more than two decades, bounced up 2.6 percent. But just as hopes Greece can stay part of the single currency zone rose, Spain's prospects of getting to grips with its ailing banking sector took a dive. Madrid's IBEX index dropped 0.7 percent, with shares in Bankia - the lender at the heart of investor concerns - dropping as much as 27 percent. Overall, the euro STOXX 50 added 0.9 percent to 2,180.63 points by 0736 GMT. Heavyweight energy stocks gave a boost to Europe's bourses , with the Greek news helping oil prices by allaying concerns over future demand from the euro zone. JP Morgan backed the sector, saying it "is very cheap and could become a safe haven". The market rebound comes after investors pulled money out of European equity funds last week, according to EPFR data. "We are quite optimistic in the short term," said Joakim Skoglund, equity strategist at Handelsbanken Capital Markets. "We would take a bet that the pro-bailout parties winning, so we are not expecting Greece to leave the euro zone in the next couple of months and that's fundamental to our view on the market. But I would be cautious on trading on single polls because I think they are going to continue to be volatile." Trading volumes should remain muted during the day, with markets in the U.S. and a number of European countries - including Switzerland, Norway, Denmark and Austria - closed. Monday is also a public holiday in France and Germany, although their equity markets were open. RISK FACTORS Strategists at Societe Generale estimated an orderly Greek euro zone exit could shave 10 percent off the value of euro zone blue chips, while a disorderly one could see the Euro STOXX 50 nearly halve in value. Others, too, were keen to highlight remaining risks ahead of the Greek elections and, in the near term, a run of key data culminating in the keenly watched U.S. jobs report on Friday. "There are plenty of data releases and events including the U.S. May jobs report and Irish Fiscal Pact referendum, which will result in increased nervousness as the week goes on," strategists at Credit Agricole CIB said in a research note. "Data this week will reveal further contrasts between the U.S. and euro zone, with sentiment gauges in the latter set to deteriorate further while consumer confidence in the former will improve. In turn, euro zone asset underperformance ... will remain in place." For the year so far, the U.S. benchmark S&P 500 is up 4.8 percent against a fall of 0.3 percent on the Europe's STOXX 600. That comes against a backdrop of stronger economic data and better corporate news flow from across the Atlantic - to date 72 percent of U.S. blue chips have met or beaten forecasts with first quarter earnings against 58 percent of European ones, according to Thomson Reuters StarMine data. Underlining the deep-seated problems in the euro zone, Spanish banking shares sold off steeply, led by Bankia . Shares in Spain's fourth biggest lender plummeted when trading resumed after they were suspended on Friday before it asked the state for 19 billion euros ($23.77 billion). Nomura reiterated its negative stance on the sector, saying yet more cash will likely be needed.