* FTSEurofirst 300 index rises 2.5 pct after Fed minutes
* Tesco top gainer after trading update
* Monte Paschi rallies on Santander merger speculation
* Greek shares lag on election worries
By Francesco Canepa and Atul Prakash
Jan 8 (Reuters) - European shares rose on Thursday as a strong Christmas update from Britain's Tesco boosted retailers and U.S. Federal Reserve minutes showed it was not in a hurry to start raising rates.
The FTSEurofirst 300 index of top European shares was up 2.5 percent at 1,363.07 points by 1516 GMT. The index remains down around 0.4 percent since the start of 2015.
Retailers led the bounce on Thursday, with the STOXX Europe 600 Retail index up 3.3 and Tesco 12 percent higher after it reported better-than-expected sales in the six-week Christmas period and unveiled plans to sell assets and cut hundreds of millions of pounds of costs.
"Four Christmases and four profit warnings later, it seems Tesco has turned the corner," Manish Singh, head of investment services at Crossbridge Capital, said.
However, Marks & Spencer fell 3.6 percent after posting a bigger-than-expected 5.8 percent drop in underlying sales of clothing, gifts and homeware over Christmas.
Broadly, the market got support from the Fed minutes. The central bank pressed ahead with its plans to begin raising interest rates later this year, but Fed officials said they could be "patient" in deciding when to begin the process.
Shares in Santander, the euro zone's biggest bank, were suspended just before announced it would cut its dividends this year and boost its capital with a 7.5 billion euro ($8.8 billion) share placement.
"That's a big surprise for me," Yohan Salleron, an equity manager at Mandarine Gestion, said. "We met Santander one month ago and they didn't say they needed a capital increase. We need to understand why they need (it)."
Italy's Monte Paschi, which is looking for a buyer after emerging as the weakest bank in a Europe-wide health check of the sector, soared 8 percent on speculation about a potential takeover by Santander.
Greek stocks lagged once again, falling 2.1 percent after the European Central Bank said Greek banks' access to ECB funding beyond February would depend on Athens successfully completing a final bailout review and reaching a deal on a follow-up plan with its EU/IMF lenders.
The statement was the clearest warning yet that Athens cannot expect to rely on ECB funding if it reneges on its obligations under the 240 billion euro bailout programme, a risk that has grown as Greece prepares for a snap election on Jan. 25.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up (Reporting by Francesco Canepa; Editing by Janet Lawrence)