UPDATE 2-Stimulus measures, hopes of more lift European shares

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* German shares surge 3%
* Deutsche Bank , Bayer surge after Q1 results
* Lufthansa surges as minister in favour of state aid
* Italy to allow factories and building sites to reopen

(Updates prices to close)
By Sruthi Shankar and Susan Mathew
April 27 (Reuters) - Airline stocks led European shares
higher on Monday on hopes of state support, while upbeat
earnings from Deutsche Bank and others added to optimism fuelled
by signs that many countries will soon ease coronavirus-driven
lockdown measures.
Shares of Lufthansa LHAG.DE jumped 10.5% after Germany's
transport minister said he was in favour of protecting the
airline company. Air France KLM AIRF.PA advanced 0.9%
following a 7 billion euro ($7.6 billion) government aid
package. German shares .GDAXI surged 3%, while the pan-European
STOXX 600 .STOXX closed up 1.8% after a modest fall last week.
With all eyes on central bank moves this week, the Bank of
Japan pledged to buy unlimited amount of bonds to keep borrowing
costs low as the novel coronavirus pandemic wreaks economic
havoc across the globe. The U.S. Federal Reserve's decision is due on Wednesday
while on Thursday, the European Central Bank is likely to signal
more bond buying.
"The focus of Thursday's meeting is to be on damage
assessment and future policy decisions," said Stephen Innes
Chief Global Markets Strategist at AxiCorp. "Policy choices will
probably come at the June meeting, but there is a chance that
the ECB could announce some modifications to the tiering of the
deposit system."
The volatility gauge for euro zone stocks .V2TX dropped to
its lowest in nearly eight weeks at 34.7193, more than halving
from its peak of 95.02 in mid-March.
Euro zone banks .SX7E surged 3.9% as Deutsche Bank
DBKGn.DE beat first-quarter earnings expectations but warned
it might miss its capital requirement target this year. The
German lender's shares jumped 12.7%. "One important point is that earnings have actually been
coming better than expected," Sebastien Galy, macro strategist
at Nordea Asset Management, wrote in a client note.
Drugs and pesticides company Bayer BAYGn.DE rose 5.8%
after its quarterly adjusted core earnings topped estimates.
But according to Refinitiv data, STOXX 600 .STOXX
companies are to record a 24.6% drop in first-quarter earnings,
steeper than last week's 22%, with consumer cyclical companies
expected to take the biggest hit.
Milan-listed shares .FTMIB rose 3% after ratings agency
S&P Global on Friday left Italy's credit rating unchanged late
on Friday, calming worries about a potential junk rating for the
euro zone's third largest economy. Italy, among the countries worst hit by the virus, is set to
allow factories and building sites to reopen from May 4.
"Country reopenings could anchor short-term sentiment
provided the COVID-19 curve remains on a flattening tangent...
We could see European equities catch up to the U.S. market this
week as phase one bounce-back could be stronger in Europe than
the U.S.," said AxiCorp's Innes.
The STOXX 600 has recovered about 25% from mid-March lows as
policymakers inject trillions of dollars into the global
economy, which has ground to a virtual halt due to the health
crisis.
Planemaker Airbus AIR.PA was among the biggest drags on
the benchmark after it warned 135,000 employees to brace for
potentially deeper job cuts and said its survival is at stake
without immediate action.