* Euro STOXX 50 up 1.1 pct, bounces after 2-day drop
* Buyout offer sends Club Med jumping 22 pct
* Equities continue to attract strong inflows -EPFR
PARIS, May 27 (Reuters) - European shares rose on Monday, rebounding after a two-day drop, with Fiat rallying on speculation the Italian carmaker could soon launch a buyout offer for its U.S. unit Chrysler.
Trading volumes were thin, however, as both the UK and U.S. markets remained closed for a public holiday.
The Euro STOXX 50 index gained 1.1 percent, at 2,795 points, after suffering a 2.5 percent drop in two days. Volumes on the euro zone's blue-chip index represented only 40 percent of its daily average volume of the past three months.
"We shouldn't read too much into today's rise, and I think the pull-back started last week is not over yet," Saxo Banque senior sales trader Alexandre Baradez said.
"However, the medium-term trend is still positive for European stocks, with no big negative catalyst ahead, and with very low bond yields driving more and more investors into equities."
Euro zone banks featured among the biggest gainers, bouncing back after a 5.6 percent slide last week, with both BNP Paribas and Banco Santander up 2 percent.
Fiat gained 4.4 percent, boosted by a press report saying the Italian carmaker is in talks with banks to secure financing for a buyout of U.S. unit Chrysler.
Club Med jumped 23 percent after the French holiday resort operator's top shareholders, AXA Private Equity and Chinese investor Fosun International, unveiled a buyout offer.
Swiss watchmakers Richemont and Swatch Group added 0.5 percent and 1.1 percent respectively, rallying after Chinese authorities said import duties on Swiss watches will be trimmed by 60 percent over the next 10 years.
Around Europe, Germany's DAX index rose 0.9 percent, France's CAC 40 added 1 percent, Italy's FTSE MIB rose 1.6 percent and Spain's IBEX climbed 1.2 percent.
European shares have strongly rallied since mid-April, boosted by massive liquidity measures provided by central banks.
Equities saw further inflows last week, according to EPFR Global, with equity funds world-wide seeing $7.49 billion of net inflows.
"A lot of investors who have the impression that they've missed the rally of the past 10 months are coming in, which is why we're seeing strong inflows continuing," said Edwin Lugo, head of the Franklin European small-mid cap growth fund.
"But at this point, equities in Asia ex-Japan are very expensive, and U.S. stocks are getting expensive, while Europe is still the cheapest market. Despite the rally started last July, the best opportunities are still in Europe."