DAX gains offset flat Milan market to lift European shares

* FTSEurofirst 300 ends up 0.6 pct at 1,346.97 points

* DAX outperforms as European equities extend rebound

* Fall in Fiat weighs on Italy's FTSE MIB

* Moller-Maersk advances after bullish results and buyback

* Lack of buyback weighs on BHP Billiton (NYSE: BBL - news)

By Sudip Kar-Gupta

LONDON, Aug 19 (Reuters) - European shares extended the previous session's rally on Tuesday, with Germany's DAX index outperforming, driven by what traders saw as an easing of the Ukraine crisis.

Italy's FTSE MIB equity index proved a drag, closing flat as carmaker Fiat retreated 2.9 percent after Credit Suisse (NYSE: CS - news) started its coverage of the stock with an "underperform" rating.

European stock markets had rebounded sharply on Monday after Russia's Foreign Ministry said some progress had been achieved during talks between Russia, Germany, France and Ukraine over the conflict.

Although the situation remained fragile - with Ukrainian government forces reporting new advances against pro-Russian separatists - traders took consolation from the fact that the situation had not worsened materially, in their eyes.

"The Ukraine situation is dragging on, which is a bit of a concern, but on an underlying basis, the stock markets look okay. People still want to be in the markets rather than out," said McLaren Securities' managing director Terry Torrison.

The pan-European FTSEurofirst 300 index, which is down nearly 4 percent since mid-June, closed up by 0.6 percent at 1,346.97 points.

The DAX rose 1 percent to 9,334.28 points. The index has advanced by nearly 4 percent in the past 10 days but is still down by some 7 percent from its peak of 10,050.98 points set in late June.

Torrison said the DAX might rise to 9,500 points by the end of August, if the Ukraine situation did not worsen.

The German equity market's recent underperformance has dragged the average price-to-earnings (P/E) ratio of domestic shares down to a level not seen since October 2013, according to data from Thomson Reuters Datastream.

The MSCI Germany index trades at 12 times expected earnings while the MSCI Europe trades at 13.6 times earnings, making Germany's P/E ratio relative to Europe the cheapest in nearly 10 years. By comparison, Wall Street's S&P 500 trades at about 15 times expected earnings.

BUYBACKS IN FOCUS

Among standouts, shares in Moller-Maersk surged 4.9 percent after the Danish shipping and oil group posted better-than-expected results, raised its full-year profit outlook and disclosed a $1 billion share buyback plan.

However, mining company BHP Billiton fell 4.9 percent. Its results missed earnings forecasts and it held off announcing a buyback but said it would spin off some assets. DL

As Europe's earnings season draws to an end, about 52 percent of companies listed on the pan-European STOXX 600 index companies have met or beaten earnings forecasts, according to Thomson Reuters StarMine data.

Psigma Investment Management chief investment officer Tom Becket said further signs of improving corporate profits were needed to prop up European stock markets.

"Markets have recovered their poise over the last week but, with European equities having gained strongly in the last two years, obvious value is hard to find without the justification of increasing profits," he said.

Europe bourses in 2014: http://link.reuters.com/pap87v

Asset performance in 2014: http://link.reuters.com/gap87v

Today's European research round-up (Additional reporting by Blaise Robinson; Editing by Louise Ireland (Other OTC: IRLD - news) )