* FTSEurofirst up 1.1 percent
* Michelin, KPN, Solvay boosted by updates
* Capita knocked by M&A fund raising
* Gains seen limited on Europe debt worries
By David Brett
LONDON, April 24 (Reuters) - European shares rebounded on Tuesday when bullish company earnings updates lifted some of the politics-driven gloom over equity markets.
The FTSEurofirst closed up 10.74 points, or 1.1 percent at 1,032.50, led by a bounce in some of the previous session's biggest fallers such as banks, after the index hit a three-month low on Monday when political uncertainty and disappointing economic data revived concerns over the euro zone.
On Tuesday, however, big companies boasting bullish updates such as Michelin helped bring some respite to beaten down markets.
"Globally I don't think there's any doubt that companies are in rude health. That's reflected in strong earnings, in high levels of margins and in very strong balance sheets," Bill Dinning, head of strategy at Kames Capital, said.
In the current quarter, of the companies that have reported globaly 67 percent have so far beaten or met earnings expectations, according to Thomson Reuters Starmine data.
French firm Michelin, the world's second-biggest tyremaker, gained 6.1 percent after confirming its goal for stable sales volumes over the full year and issuing an upbeat outlook.
Dutch telecom group KPN added 3.7 percent as it confirmed the outlook for the whole year, despite a 13 percent decline in first-quarter core profit.
ARM, the British company whose technology powers Apple's iPad, met market expectations with a 22 percent rise in first-quarter profit, but concerns over chip supply, lack of upgrades and Apple's results due after the market close depressed the share price.
Chemicals and plastics firm Solvay climbed 3.7 percent as it said trading picked up over the first quarter and forecast profits should rise by half in four years as it focuses on better performing divisions and makes bolt-on acquisitions.
M&A continued to drive equities as cash rich companies look to buy cheap assets to bolster earnings against a tough economic backdrop.
TeliaSonera rose 6.6 percent as the Nordic telecoms firm unveiled plans to sell part of its stake in Russian phone operator MegaFon, which will also pay a dividend to all shareholders.
British outsourcing group Capita, increasingly reliant on acquisitions for growth, fell 6.4 percent as it raised 274 million pounds ($441 million) selling new shares to boost its war chest.
Broker guidance left UK tobacco firms BAT and Imperial Tobacco (IMT) nursing losses of up to 1.8 percent
BofA Merrill Lynch downgraded its ratings for both to "neutral" from "outperform" and reduced target prices in a sector review, citing valuation grounds.
International Airlines Group (IAG), however, bounced 3.6 percent higher as both Credit Suisse and Davy Research upgraded their respective recommendations on the owner of British Airways and Iberia, both citing a more favourable outlook for the carrier.
After a strong start to 2012, the FTSEurofirst and the STOXX 50 have shed around 7.8 and 14 percent, respectively, as the effects of central bank stimulus has worn off and worries have grown primarily over SPain's economy.
The fall has left the FTSEurofirst close to bearish territory, but continues to find support near the 50 percent retracement level of the LTRO rally that started in December.
"Europe's the wild card. The ECB's done a good job in providing support to its banking system but it has not yet really provided significant monetary stimulus to the economy and we need that to offset domestic austerity," Kames Capital's Dinning said.
A stable debt auction in the Netherlands assuaged some fears after the ruling coalition collapsed on Monday in a crisis over budget cuts, but Europe's debt problem remains a major weight on European equities.
Mixed U.S. data will do little to lift investor sentiment towards equities as new U.S. single-family home sales dropped in March, but still beat analysts' expectations, while U.S. consumer confidence edged slightly lower in April.
Deutsche Bank said the summer corrections of 2010 and 2011 followed negative macro data surprise cycles beginning in the spring.
"The recent negative data surprises and softness in equity markets following on another strong start to the year has elicited many parallels with the last two years and concerns of a 'three-peat' performance of risk assets," Deutsche Bank said.