* FTSEurofirst up 1.1 pct, posts highest finish in 3 weeks * German DAX adds 1.6 pct, cheered by strong ZEW * Subdued rally volumes highlight remaining risks By Toni Vorobyova LONDON, Feb 19 European shares rebounded on Tuesday from three days of losses, with stronger-than-expected German sentiment data prompting investors to return to sectors like autos and technology. The keenly watched German ZEW investor sentiment index jumped to a three-year high, beating even the most optimistic forecasts. The data gave an early flavour of the kind of economic improvement that strategists and investors are looking for to power European equity market gains this year. "Some investors are asking if the improvement in leading indicators is sustainable, and we think it is," said Andreas Huerkamp, equity strategist at Commerzbank. "The start of recovery of leading indicators should continue and then, in the second quarter, companies will start to become more optimistic again ... That should trigger the next upward move in the market." A strong start to the week on Wall Street - which had been closed on Monday for a public holiday - also increased appetite for European equities, helping the market extend gains in afternoon trade. The pan-European FTSEurofirst 300 index closed up 1.1 percent at 1,171.73 points - more than recovering the previous three session's losses to post its best finish in three weeks . The German DAX was one of the top-performing indexes in the region, ending 1.6 percent higher at 7,752.45 points after breaking above a minor cluster of technical resistances in the 7,700 to 7,710 area, including the 20- and 30-day moving averages. Huerkamp at Commerzbank forecast that the German benchmark would finish the year at 8,500 points, continuing - alongside the German economy - to benefit from its exposure to exporters, who have been able to cash in on stronger growth abroad while the euro zone stutters. "We have quite a high weighting of global growth - autos, chemicals and industrials have nearly a 50 percent weighting in the DAX, while Euro STOXX 50 has only 25 percent in these sectors ... So that's the big advantage of German equity markets," he said. Tuesday's earnings reports further highlighted the importance of foreign earnings, with Danone, the world's biggest yoghurt maker, reporting better-than-forecast sales thanks to demand in the United States and the former Soviet Union while Europe remained weak. Danone shares jumped 5.9 percent, topping the FTSEurofirst 300 gainers board. With the earnings season about a third of the way through, some 41 percent of large and mid-cap companies in developed Europe have undershot on full-year earnings expectations, prompting analysts to cut 2013 views by 2.1 percent, according Thomson Reuters StarMine data. The lacklustre results threaten to make European equities unappealing on price-to-earnings valuations. "Europe is the weak link here ... now you are really in a period when you need to see some growth coming through because otherwise you are asking for a bigger and bigger multiple," said Mike Ingram, market commentator at BGC Partners. With other event risks also on the horizon - including this weekend's Italian elections - some investors remained unwilling to chase any rally, with Tuesday's volumes on EuroSTOXX 50 at just 84 percent of their 30-day daily average. "Our general move has been to take some profits ... put it back into cash and roll some of the proceeds into more defensive cyclicals and wait for that pullback to come," said Oliver Wallin, investment director at Octopus Investments, adding that any such correction could create a fresh buying opportunity.
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