Europe stocks resume 2-wk rally; banks, commods rise

* FTSEurofirst 300 index up 0.4 pct

* Banks, commods rise

* Ryanair slips as reduces FY profit

By Joanne Frearson

LONDON, July 27 (Reuters) - European shares were higher in early trade on Monday, resuming their sharp two-week rally on corporate results optimism with banks and commodity stocks the biggest risers.

By 0826 GMT, the FTSEurofirst 300 <.FTEU3> index of top European shares was up 0.4 percent at 910.69 points. The pan-European index ended a shade lower on Friday after rising for nine straight sessions, a rally fuelled by better-than-expected company results.

The index, which surged more than 11 percent over the past two weeks, has gained 41 percent since reaching a lifetime low in early March.

"Corporate results this week will again be crucial. Although the figures appear better or quite optimistic for some people, what I am concerned about is sales figures are not so good," said Justin Urquhart Stewart, direct at Seven Investments.

"Companies are only just stripping out the bark... what you have got is a squeeze in demand... I think we need to be rather careful on how much further this rally goes in the Western markets," he said.

Banks were among the biggest movers on the index with Banco Santander , Societe Generale , Deutsche Bank and UniCredit up 1-2.6 percent.

Energy stocks were higher as crude rose towards $69 a barrel. BP , Royal Dutch Shell and Total were up 0.7-1.8 percent.

Mining stocks gained as copper

British publishing group Pearson soared 10 percent after the publishing group reported above-forecast first-half results and maintained its full-year outlook. [ID:nLQ16599]

RYANAIR SLIPS

On the downside, Irish airline Ryanair slumped 10.5 percent after the company said it would reduce its full-year profit outlook to the lower end of 200-300 million euros. [ID:nLO272691]

"The downgrade, in terms of profits, spooked the market," one Dublin-based trader said.

"People generally didn't believe him (Ryanair's chief executive) at the full-year stage when he was guiding yields down 15-20 percent and now that he is guiding them down further than that, guys are getting a bit scared."

Within the sector, British Airways lost 2.9 percent and easyJet eased 2.1 percent.

Europe's largest defence electronics company Thales slipped 3.3 percent after it posted a deeper than expected slide in first-half profit, hampered by the weak economy and delays in a major European military project. [ID:nLR70171]

Volkswagen was down 3.8 percent after the Financial Times Deutschland reported that the carmaker is considering a 4 billion euros capital increase to offset the credit rating impact of its merger with Porsche .

A Volkswagen spokeswoman declined to comment on the report. Porsche fell 5.2 percent.

Across Europe, the FTSE 100 <.FTSE> index was up 0.04 percent, Germany's DAX <.GDAXI> was 0.6 percent higher and France's CAC 40 <.FCHI> was up 0.6 percent.

Turning to economic news, June U.S. new homes sales numbers will be the main macro focus, with the consensus forecast for a rise of 0.36 million, up from 0.342 million in May. (Editing by Mike Nesbit)