Better earnings boost European shares after best start of year in decades

* FTSEurofirst 300 up 0.4 pct, gains 14 pct in 2 months

* Airbus surges after posting sharp rise in operating profits

* Index ends February up 6.7 percent

* European stocks at highest P/E ratio since 2004 (Adds detail, updates with closing prices)

By Alistair Smout and Blaise Robinson

LONDON/PARIS, Feb 27 (Reuters) - European shares rose on Friday, building on their best start to the year since regional benchmarks began in late 1986, to close at seven-year highs, supported by encouraging earnings reports.

Shares (Frankfurt: DI6.F - news) in Airbus were up 7.2 percent after it posted a rise in operating earnings and announced its biggest ever dividend. The company was the most heavily weighted gainer on the pan-European FTSEurofirst 300.

Bank of Ireland (Other OTC: IRLD - news) rose 7.6 percent after reporting its first annual profit since the financial crisis. Shares in International Airlines Group rose 3.7 percent after it upgraded its 2015 profit forecast by more than 20 percent.

Bucking the trend, Belgian telecom company Belgacom (LSE: 0DPU.L - news) 's shares dropped 5.6 percent. Quarterly profit and 2015 forecasts came in below market expectations.

Also in Belgium, pharmaceutical company UCB fell 1.8 percent after its profit outlook missed analyst forecasts.

About two-thirds into Europe's earnings season, 55 percent of companies have met or beaten forecasts. Fourth-quarter earnings are set to grow 14.9 percent, according to Thomson Reuters I/B/E/S, which would be Europe's best earnings season in 3 1/2 years.

"Earnings in general have been encouraging. The U.S. earnings picture is looking challenging, but European earnings are being upgraded," said Frédérique Carrier, director of European equities at RBC Wealth Management. "In Europe you have better earnings momentum and you have valuations that are not stretched."

The FTSEurofirst 300 index of top European shares closed up 0.4 percent at 1,559.88 points, its highest close in seven years. The broader STOXX 600 was also up 0.4 percent.

The index ended February with gains of 6.7 percent, and European stocks are are up 14 percent so far this year, boosted by the prospect of the European Central Bank's quantitative easing programme set to start in March.

The rally has left the STOXX 600 trading at the highest valuation multiple in 11 years and deep in 'overbought' territory on technical charts.

Despite a nascent recovery in earnings, the STOXX 600 is trading at 16 times expected earnings in the next 12 months, its highest price-to-earnings ratio (P/E) since early 2004 and well above a 10-year average P/E of 11.8.

Europe bourses in 2015: http://link.reuters.com/pap87v

Asset performance in 2015: http://link.reuters.com/gap87v

Today's European research round-up (Editing by Larry King)