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European shares rally after Ukraine talks ease some investor fears

* FTSEurofirst 300 up 1.2 pct, bounces from Friday's dip

* Rebound led by German blue-chips

* Investor expectations growing for ECB intervention-poll

(Updates with closing prices)

PARIS, Aug 18 (Reuters) - European shares rallied on Monday as the market was encouraged by diplomatic efforts at the weekend to try and ease tension in Ukraine.

Russia's Foreign Ministry said on Monday a "certain progress" was achieved during talks between Russia, Germany, France and Ukraine in Berlin on Sunday, although there was no movement towards a ceasefire between government and rebel forces in eastern Ukraine.

At 1518 GMT, the FTSEurofirst 300 index of top European shares closed up 1.2 percent at 1,339.35 points. Germany's DAX rose 1.7 percent.

Equities were also bolstered by mounting investor hopes that the European Central Bank will resort to asset purchases in the coming year, with a Reuters poll of euro money market traders putting expectations of this at 50 percent.

German blue-chips - considered the most vulnerable to the tensions between the West and Russia - were among the top gainers on Monday. Continental AG, BASF and Siemens were up between 1.6 percent and 3.3 percent.

Autos stocks also brushed off the threat of possible retaliatory sanctions from Russia against Western nations, which according to Russian daily newspaper Vedomosti may include a ban on the imports of cars. The STOXX Europe 600 autos index rose 2 percent.

The pan-European index had lost 0.5 percent and Germany's DAX had dropped 1.4 percent on Friday, when reports that Ukrainian forces had partially destroyed a military column from Russia in Ukraine deepened market fears the conflict was escalating.

"Friday's news spooked investors, but it turns out that there was no escalation involving Russian forces over the weekend and that rebel forces have actually been retreating, which helps the market reverse losses," Saxo Bank trader Pierre Martin said.

"Investors want to believe in this rebound that started early last week after a 10 percent correction, so we're seeing buyers on the dip."

Europe's corporate earnings recovery has increased dividend payouts by the most in five years, data showed on Monday. Low interest and a further rise in profits should keep payouts flowing.

There was some positive earnings news from Britain's biggest customer-owned lender, Nationwide Building Society, which more than doubled first-quarter profit.

The FTSEurofirst 300 had lost as much as 7.4 percent and Germany's DAX as much as 11 percent between late June and early August. The losses came amid fears that the Ukrainian conflict and tensions between the West and Moscow could derail Europe's fragile economic recovery and hit corporate results.

Stocks started to recover last week with the FTSEurofirst gaining 1.4 percent over the week despite Friday's pull-back.

Europe bourses in 2014: http://link.reuters.com/pap87v

Asset performance in 2014: http://link.reuters.com/gap87v

Today's European research round-up

(Editing by Robin Pomeroy)