UPDATE 2-Burberry bounce helps to push European stocks to 1-week high

* Burberry has strongest day since October 2012

* Paris-listed stocks outperform as luxury stock rise

* Britain's FTSE rises as pound hit by Brexit woes (Updates to close)

By Sruthi Shankar and Amy Caren Daniel

July 16 (Reuters) - British fashion brand Burberry's shares jumped on Tuesday, lifting other luxury goods makers, while upbeat earnings from big Wall Street banks spurred gains for the region's lenders, driving major European markets to their highest closing levels in a week.

Burberry's shares surged 14.4%, their biggest one-day gain in 7 years, as quarterly results showed demand for new designs by creative chief Riccardo Tisci picking up.

Upscale retailers in Europe, including Hermes, Louis Vuitton owner LVMH and Gucci parent Kering , rose between 0.4% and 2%, helping France's CAC 40 index outperform its European peers with a 0.65% gain.

Britain's FTSE 100 rose 0.6%, as a weaker pound boosted London-listed multinationals.

The euro was also dented after data pointed to a deterioration in confidence among German investors, helping exporters on the pan-European STOXX index, which rose 0.35% at 389.10, its highest closing level since July 8.

"It is ultimately a story on the dollar strength and European currency's weakness," said Joshua Mahony, senior market analyst at IG.

The second-quarter earnings season gets going in Europe this week, with major companies such as SAP, ASML and Novartis set to report results over the next two days.

That will be a test for the recovery in stock markets since May on the back of expectations that an easing of central bank monetary policy globally would prop up consumer demand and avert a recession.

Companies listed on the STOXX 600 index are expected to report earnings growth of 0.2% in the quarter, among the weakest in years and down from 0.8% estimated a week ago, according to data from I/B/E/S Refinitiv.

"The question is how high market expectations are going into an earnings season that is expected to provide another batch of largely flat or negative earnings figures," IG's Mahony said.

"Business confidence is low, and global growth has taken a hit, so the forward looking outlook will be critical for traders."

Shares of European banks rose 0.7% after major U.S. lenders J.P. Morgan, Goldman Sachs and Wells Fargo reported better-than-expected quarterly earnings.

Ryanair's shares gained 2.2% and its European rivals jumped after the world's biggest budget airline halved its growth plans for next year due to delays in deliveries of Boeing's grounded 737 MAX jet.

Lufthansa, British Airways-owner IAG and Air France all gained about 3% as the news eased fears that a surge in new capacity for the Irish carrier would put pressure on ticket prices.

Norway's Yara, among the world's largest fertiliser makers, rose 4.2% after its quarterly earnings beat estimates. (Reporting by Sruthi Shankar and Amy Caren Daniel in Bengaluru; editing by Patrick Graham and Jane Merriman)