European shares bounce after heavy Ukraine-driven selling

* FTSEurofirst 300 rises 1.7 pct

* Euro STOXX 50 climbs 2.2 pct

* Both indexes had fallen sharply on Monday

* Prospect of de-escalation in Ukraine dispute lifts stocks

* Banks and Glencore among top performers

By Sudip Kar-Gupta

LONDON, March 4 (Reuters) - European shares rebounded on Tuesday from losses in the previous session, with banks and mining company Glencore among top performers, on tentative signs belligerence between Ukraine and Russia was diminishing.

The pan-European FTSEurofirst 300 index, which fell 2.2 percent on Monday, bounced back by 1.7 percent to 1,340.03 points - around 1 percent below its 2014 peak of 1,353.47 points in late January, its highest since May 2008.

The euro zone's blue-chip Euro STOXX 50 index, whose 3 percent fall on Monday was its worst decline since June 20 last year, also rebounded, by 2.2 percent, to 3,119.77 points.

Global equities fell sharply on Monday after Russian troops seized control of key locations in Ukraine's Crimea. But they recovered on Tuesday, as Russian President Vladimir Putin ordered troops on exercises in western Russia back to base in an apparent effort to ease East-West tension over Ukraine.

"It's still a very worrying situation, but the situation seems to have calmed down a bit. That's why we're seeing a bit of a recovery," said Scott Meech, co-head of European equities at Union Bancaire Privee (UBP).

Meech said he felt the backdrop of a gradual recovery in European company earnings and the European economy remained intact, in spite of the hit to markets caused by Ukraine.

"The fundamentals are still pretty good, and I think the right instinct is to buy any weakness in the market," he said.

BANKING STOCKS RECOVER

Glencore Xstrata (Other OTC: GLCNF - news) rose 2.5 percent to provide one of the biggest boosts to the FTSEurofirst 300, index after it posted core profits above market forecasts.

Banks also recovered from a fall on Monday caused by worries over the exposure of some lenders to Ukraine and Russia. The STOXX Europe 600 Banking Index rose by 1.8 percent.

Banks and European equities in general were also buoyed by speculation that the European Central Bank may loosen lending conditions on Thursday, after ECB President Mario Draghi said late on Monday that inflation in the euro zone was "way below" the ECB's goal.

Some analysts also stressed that the market swings triggered by the tensions in Ukraine should be seen in the context of a broad stock market rally over the last year. The FTSEurofirst 300 is up nearly 2 percent since the start of 2014 after gaining 16 percent last year.

John Surplice, European equities fund manager at Invesco (NYSE: IVZ - news) , backed banks as one of his favoured sectors for this year.

"It is important to remember that the bank sector has earnings that are more sensitive to economic growth than any other sector," Surplice said. "So, as the economy improves, you are going to get this reflected in upside to earnings estimates for the banking sector