* FTSEurofirst 300 up 0.3 pct, Euro STOXX 50 up 0.4 pct
* KPN unit sale, Vivendi deals spark rally in telecoms
* Reports on Chinese rail projects boost mining shares
* Spain's debt auction helps local banks
* Room on the upside for indexes in short term -chartist
By Blaise Robinson
PARIS, July 23 (Reuters) - European shares rose to seven-week highs on Tuesday as China's plan to support growth boosted mining shares and a flurry of deal activity sparked a rally in the telecoms sector.
Spanish banks also climbed, benefiting from rising risk appetite and they extended gains after demand for a short-term Spanish bond sale came in at the top end of forecasts and 10-year Spanish yields fell to five-week lows.
BBVA was up 3.8 percent and Banco Santander was 2.3 percent higher.
At 1035 GMT, the FTSEurofirst 300 index of top European shares was up 0.3 percent at 1,213.78 points, a level not seen since early June.
The euro zone's Euro STOXX 50 index was up 0.4 percent, at 2,736.29 points. The blue-chip index has surged 10 percent since late June, mirroring sharp gains on Wall Street, where the S&P 500 has hit record closing highs.
"The trend is pretty strong in the short term, and the index should test the 2,750-2,760 zone pretty soon. Beyond that, we'll be looking at the year's highs hit in late May," said José Antonio González, chartist at EuroScreener, in Zaragoza, Spain.
Dutch telecoms group KPN was up 3.2 percent in volumes that were nearly four times the stock's daily average volume, after the firm said it would sell its E-Plus unit to Telefonica Deutschland for 5 billion euros in cash and a 17.6 percent stake in the merged company.
French construction-to-telecom conglomerate Bouygues surged 6.4 percent in twice its average daily volume and SFR parent Vivendi added 3.3 percent after the firms said they had entered talks to share part of their mobile networks.
Vivendi shares were also boosted by news that the group is in exclusive talks to sell its 53 percent stake in Maroc Telecom to Dubai-based Etisalat in one of the biggest emerging market deals this year.
Miners also helped fuel the market's gains on Tuesday, after media reports from China that said the government would use railway projects to help cut gluts in steel, cement and other construction materials, and would not let economic growth drop below 7 percent.
Anglo American gained 2.5 percent and BHP Billiton added 2.2 percent. The sector is down 20 percent year-to-date, hurt by concerns about a slowdown in China's economic growth.
"Anything even slightly positive coming out of China becomes a trigger because these shares are ripe for a technical rebound," a Paris-based equity and exchange-traded fund (ETF) trader said.
Bucking the trend, Swiss machinery manufacturer Sulzer dropped 13 percent after warning on lower full-year profits, while STMicroelectronics shed 6.6 percent after the maker of semiconductors posted a quarterly loss more than double that of a year earlier.
About 18 percent of the STOXX Europe 600 companies have reported second-quarter results so far this earnings season, with 50 percent of the firms meeting or beating profit forecasts, according to Thomson Reuters StarMine data. On revenues, 64 percent of the firms have met or beaten forecasts.