Reuters - European stocks surged on Tuesday, reversing a big portion of the previous session's sharp losses after Russian President Vladimir Putin said he would only use force in neighbouring Ukraine as a last resort.

Putin's first comments on the crisis sought to ease East-West tension and fears of war in the former Soviet republic and helped fuel a rebound in equities worldwide. Putin had earlier ordered an end to large-scale military exercises near Russia's border with Ukraine, which gave markets an initial boost.

"If we can avoid military escalation and big repercussions on things like gas transport, then I think that markets will quickly start focussing on other topics again such as Chinese and U.S. growth," said Johannes Müller, chief investment officer for Germany at Deutsche Asset & Wealth Management, which has 931 billion euros ($1.28 trillion) of assets under management.

"When looking at fundamentals for 2014, with economic growth picking up, equities should outperform bonds this year. But every time we will have noise such as the tensions in Ukraine right now, or a weak reading of manufacturing data, we're going to see a heavy reaction on the market."

Shares in European blue-chips with the biggest exposure to Russia were among top gainers after being hammered on Monday.

Finnish tyre maker Nokian Renkaat rose 3.6 percent while Austrian lender Raiffeisen Bank International gained 5.8 percent. The two companies derive respectively 26 percent and 22 percent of their overall revenues from Russia, according to data from MSCI.

The FTSEurofirst 300 index of top European shares ended 2 percent higher at 1,344.83 points, while the euro zone's Euro STOXX 50 rose 2.7 percent at 3,136.33 points.

The two benchmarks tumbled 2.2 and 3 percent respectively on Monday after Russian troops seized control of key locations in Ukraine's region of Crimea.

European banking stocks also featured among the top gainers on Tuesday, with UniCredit up 5.4 percent and Societe Generale up 3.4 percent. The sector was buoyed by speculation that the European Central Bank will loosen lending conditions on Thursday, after ECB President Mario Draghi said inflation in the euro zone was "way below" the ECB's goal.

European shares have gained about 7 percent from a low point in February - with key national indexes such as Germany's DAX and UK's FTSE 100 flirting with record highs - boosted by signs of an economic recovery in the euro zone and a string of better-than-expected corporate results.

With Europe's earnings season drawing to an end, 56 percent of companies have posted earnings that have met or beaten analyst expectations, according to Thomson Reuters StarMine.

Scott Meech, co-head of European equities at Union Bancaire Privee, said the backdrop of a gradual recovery in European company earnings and the European economy remained intact, in spite of the hit to markets from tensions in Ukraine.

"The fundamentals are still pretty good, and I think the right instinct is to buy any weakness in the market," he said.