Utilities, energy push up European shares

* FTSEurofirst up 1.3 percent

* Utilities, energy lead; banks recoup gains

* Drop in crude oil relieves some inflation concerns

By Amanda Cooper

LONDON, July 7 (Reuters) - European stocks rose on Monday, driven by utility shares as merger speculation boosted Iberdrola (IBE.MC: Quote, Profile, Research), and by a drop in the price of crude oil.

Iberdrola was a major gainer, rising by more than 7 percent after Repsol (REP.MC: Quote, Profile, Research), the company's second largest shareholder, said it saw no alternative to a merger between the company and Gas Natural (GAS.MC: Quote, Profile, Research), which rose 4.5 percent. Rivals EDF (EDF.PA: Quote, Profile, Research), Centrica (CNA.L: Quote, Profile, Research) and Suez (LYOE.PA: Quote, Profile, Research) gained between 3 and 5.5 percent, helped by Iberdrola and investor optimism on the outlook for stable earnings within the sector.

The FTSEurofirst 300 index of top European shares ended 1.3 percent higher at 1,178.69 points. The index fell 1.3 percent on Friday.

Oil and gas producers were among the top performers on the broader market despite a lower oil price, as traders cited a rebound from weakness last week.