European shares turn positive as stimulus hopes persist

* FTSEurofirst 300 up 0.6 percent

* Earnings lift Danske Bank, Intercontinental

* Standard Chartered slump on Iran dealings

By David Brett

LONDON, Aug 7 (Reuters) - European shares rose on Tuesday, reversing early losses, as investors remained optimistic that the European Central Bank would do what it takes to support bond markets in stricken euro zone countries and prevent the collapse of the euro.

By 0757 GMT, the FTSEurofirst 300 was up 6.33 points, or 0.6 percent, at 1092.12, while the Euro STOXX 50 , the index of blue chip euro zone stocks, was 1.4 percent higher.

"People are starting to reprice the Italian and Spanish risk ... it's not over and I don't expect the process to stop until we have an accident," said Francois Duhen, strategist at CM-CIC Securities.

Bond yields in Italy and Spain have kept below the unsustainable 7 percent level, while equity markets have been in risk-on mode ever since ECB President Mario Draghi said he would do 'whatever it takes' to save the euro.

On Tuesday, Italy's benchmark stock index added 1.3 percent and its Spanish equivalent rose 1.7 percent, while the STOXX50 approached the pivotal 2,400-level, which marks a 61.8 percent retracement of the fall which began in mid-March and ended in early June.

The FTSEurofirst 300 was led higher by companies that delivered upbeat updates on their business outlooks despite the depressed macro economic conditions.

Denmark's Danske Bank jumped 5.7 percent after it beat second-quarter profit forecasts.

InterContinental, the world's biggest hotelier, rose 4.8 percent after promising to return $1 billion to investors, partially funded from the planned sale of a New York hotel. It posted a rise in profits boosted by business in the United States and China.

Earnings on the whole remain mixed, highlighting the austere market conditions. Thomson Reuters StarMine data showed that about 65 percent of Europe's STOXX 600 companies had reported results so far, of which 51 percent had met or exceeded forecasts, while the rest missed the estimates.

STANDARD CONCERNS

Banking shares, which had rallied more than 12 percent over the previous nine days, were the main drag on European indexes, as more scandal hit the sector.

Shares of Standard Chartered Plc were down 12.7 percent on heavy volumes, after plunging as much as 20 percent in early London trade after New York's top bank regulator accused it of hiding transactions to Iran and threatened to strip the lender of its state banking license.

The regulator accused the London-based bank of hiding $250 billion in transactions tied to Iran, in violation of U.S. law.

"In the face of these risks, we cannot defend our 'buy' rating despite fundamental preference and as such downgrade (it) to neutral. In the near term we see downside risks from negative headlines on the topic," Nomura said in a note.

There were also lingering concerns that the current rally, which has seen the STOXX50 and the FTSEurofirst 300 gain more than 11 and 7 percent, respectively, in the last 10 days, might look overdone if investor expectations for central bank or political intervention to stem slowing global growth and bond market weakness are not realised.

"We have had good gains in recent weeks and it has been difficult to fight it, but we are sceptical over the durability of the rally until we see some evidence that the ECB and political bodies can get together to provide concrete measures to support the markets," Gerry Celaya, chief analyst at Red Tower Research, said.

Celaya said it was difficult to get too bullish over cyclical stocks such as the banks, especially if investors have missed the first part of the rally, and now might be time to wait for a pull back before adding to risk exposure.

"We have seen that since the start of the year where you have seen sharp market moves with very little participation (followed by a steep retreat)," he said.