DAX leads European rebound on Ukraine hopes

Reuters

* FTSEurofirst 300 rebounds 1.1 pct * Index had fallen 7 pct in last 2 weeks * Germany's DAX outperforms * Banco Popolare surges after forecast-beating results By Sudip Kar-Gupta LONDON, Aug 11 (Reuters) - European shares rebounded on Monday from a two-week drop after investors concluded Russia would not send troops into Ukraine any time soon.

Late on Friday, Russia's Defence Ministry said it had ended military exercises in southern Russia that the United States had called "provocative." Though clashes continued between Ukrainian forces and pro-Russian separatists, traders interpreted Russia's move as a de-escalation.

"The Ukraine situation appears to be stabilising. European shares took a big beating over the last couple of weeks, so we're seeing a relief rally," said Ion-Marc Valahu, a fund manager at Geneva-based firm Clairinvest.

The pan-European FTSEurofirst 300 index, which had fallen some 7 percent over the last two weeks, rose 1.1 percent to 1,320.43 points. The euro zone's blue-chip Euro STOXX 50 index rose 1 percent to 3,035.93 points.

Germany's DAX outperformed, rising 1.6 percent.

Worries about the impact of Western sanctions against Russia had pushed the DAX down by around 11 percent from a record high of 10,050.98 points in late June, since many top German companies have significant business ties to Russia.

"I went long on the Euro STOXX and the DAX at the end of last week," said Valahu, referring to positions betting on future gains.

RALLY COULD BE FRAGILE With the situation on the ground in Ukraine remaining uncertain, any relief rally could be fragile.

Ukrainian forces were poised to recapture the city of Donetsk from separatists, and U.S. President Barack Obama and German Chancellor Angela Merkel agreed that any Russian intervention in Ukraine - even for 'humanitarian' reasons - would provoke 'additional consequences.' "The 10 percent correction in Europe has brought some nice buying opportunities, and the market was clearly oversold on Friday. But this is mostly a technical bounce, which should last just a few days," said Arnaud Scarpaci, fund manager at Paris-based Montaigne Capital.

Euro zone banking shares - recently hit by the bailout of Portugal's Banco Espirito Santo - featured among the top gainers on Monday. Italy's fourth-biggest bank Banco Popolare rose 7.7 percent after stronger-than-expected quarterly results.

(Additional reporting by Blaise Robinson; Editing by Larry King and John Stonestreet)

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