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DAX leads European rebound on Ukraine hopes

* 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.

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"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)