* FTSEurofirst 300 up 0.7 percent after Monday's 3-week low
* Luxury shares in demand after Burberry's strong results
* For up-to-the-minute market news, click on
By Atul Prakash
LONDON, April 19 (Reuters) - European equities bounced back on Tuesday as luxury goods shares jumped after strong results from Burberry, with analysts saying the market was expected to remain supported as key risks were priced in.
A 7.5 percent drop in the Euro STOXX 50 volatility index suggested that risk appetite was returning, while charts showed that recent declines had not changed the market dynamics and the bias was still on the upside.
At 1114 GMT, the FTSEurofirst 300 index of top European shares was up 0.7 percent at 1,119.98 points after a three-week low on Monday when Standard & Poor's downgraded its credit outlook on the United States.
The Euro STOXX 50, the euro zone's blue chip index, was up 0.6 percent at 2,865.55 points.
"We are still in a choppy uptrend. The Euro STOXX index is supported above the base of the weekly Ichimoku cloud. It can drop towards 2,700 in the near term, but I would assume that as a corrective move within the ongoing uptrend," said Phil Roberts, technical strategist at Barclays Capital.
The 2,700 area was the base of the weekly cloud and that supported the market in June, August and November of last year and in March of this year, he said, adding a rise above 2,900 would suggest that the market had stabilised and could go back towards the 3,000 level again.
The cloud indicator measures momentum and is used to define support and resistance levels, to reveal trend direction, to generate trading signals and to define the strength of signals.
Luxury goods maker were in demand, with the STOXX Europe 600 Personal and Household Goods index rising 1.3 percent. Burberry rose 6.4 percent after posting a 33 percent spike in fourth quarter sales, while LVMH, the world's biggest luxury group, gained 4.2 percent after its first-quarter sales beat analysts' expectations on Monday.
Luxury carmakers BMW and Daimler AG rose 2.3 percent and 1.3 percent respectively, while the European automobile index gained 1.6 percent.
POSITIVE OUTLOOK
Hendrik Leber, managing partner of ACATIS Investment, which manages 1.2 billion euros ($1.71 billion), said he was positive on stocks as companies were expected to report good earnings. He has mostly moved out of Asian equities, but found big value in Europe, especially in utilities and energy equipment sectors.
"We face the truth that some countries are too much into debt, but companies will be around to provide us say hamburgers and shampoos. Stocks are kind of the new safe haven."
He said there has been huge investment in utilities and the energy distribution sector and the shares were expected to provide good returns. Uncertainties related to the future of nuclear power generation was also likely to help the sectors.
The European utilities index was up 0.3 percent.
Michael Gordon, chief investment officer for equities at BNP Paribas Investment Partners, said he expected equities to hand in 5 to 10 percent returns in the next 12 months as many of the risks that the market was seeing were already in the price.
"Equities are up to speed with events ... There will be less positive or negative surprises," said Gordon, who is responsible for 50 billion euro worth of investment.
Banks also rose and volumes were high. The sector index gained 0.6 percent, while EFG Eurobank climbed 4 percent. Investors kept a close on eye on peripheral European stocks, with short-dated Greek bond yields climbing further on growing talk Greece would have to restructure its debt.
Synthes rose 1.8 percent after surging 5.6 percent on Monday when the company confirmed it was in merger talks with Johnson & Johnson. Synthes' trading volumes were 294 percent of its 90-day daily average by midday trade. (Additional reporting by Dominic Lau; Editing by Louise Heavens)