UPDATE 2-Earnings, trade optimism help European shares ahead of Fed decision

* BNP Paribas , Credit Suisse rise on good earnings
* Lloyds slumps after weak pretax profit
* Fed decision expected at 1800 GMT

(Updates to close)
By Medha Singh and Sruthi Shankar
July 31 (Reuters) - A slew of positive corporate earnings
and optimistic signs from U.S.-China trade talks propped up
European shares on Wednesday as investors braced for what would
be the U.S. Federal Reserve's first interest rate cut in more
than a decade.
Shrugging off a weak start, the pan-European STOXX 600
.STOXX rose 0.2%, recovering from its worst day in nearly
three months on Tuesday.
The trade-sensitive DAX .GDAXI rose 0.3% after U.S. and
Chinese negotiators wrapped up a brief round of talks that both
sides described as "constructive". However, all eyes were on the Fed's policy statement, due at
1800 GMT, with money markets pricing in a roughly 80% chance
that the U.S. central bank will cut rates by 25 basis points, in
preference to a 50-point cut.
Fed Chair Jerome Powell's news conference - and what signs
it provides on future easing - may prove, however, more crucial
to market moves over the next few days.
"There's different views in the market about whether or not
it (a rate cut) is kind of a one-and-done (deal) and investors
are happy to take their time and really understand what signal
the Fed is sending," said Marchel Alexandrovich, senior European
Economist at Jefferies.
The Fed decision follows the European Central Bank's pledge
last week to ease policy further and data on Wednesday showing
euro zone economic growth halved in the second quarter and
inflation slowed sharply in July made the case for aggressive
action. The turn of central banks globally towards monetary easing
had driven sharp rises in stocks in June and early July but
after a mixed earnings season and Tuesday's sell-off, the STOXX
index ended the month up just 0.2%.
Earnings on a handful of major European banks was again
contradictory.
Lloyds Banking Group LLOY.L , Britain's biggest mortgage
lender, dropped 3.2% after posting weaker-than-expected pretax
profits, taking London's FTSE 100 .FTSE down -0.8%.
The euro zone banking index .SX7E , however, gained as
France's BNP Paribas BNPP.PA rose 1.6% on a strong performance
in corporate and investment banking and Credit Suisse CSGN.S
2.4% after reporting its highest quarterly earnings in four
years. "There's anxiety about bank profitability," said
Alexandrovich. "But, for the markets, the immediate kind of
excitement will be what kind of package of measures the ECB
unveils in September for the sector."
The retail sector .SXRP got a lift from fashion group Next
NXT.L , which jumped 8% after reporting a surprise 4% rise in
full-price sales as it shrugged off Britain's retail gloom.
Sportswear group Puma PUMG.DE also gained 8.4% as it
raised its outlook for sales growth and operating profit for
2019. Rival Adidas ADSGn.DE advanced 3.7%. Helping Italian shares .FTMIB outperform, Fiat Chrysler's
shares FCHA.MI rose 2.9% after the Italian automaker stuck to
its full-year profit guidance after a strong performance from
its Ram pickup truck in North America helped it defy an industry
slowdown. Ferrari's shares RACE.MI rose 1%.