UPDATE 1-Financials propel European stocks higher while Pandora sinks

* STOXX 600 up 0.6 pct, DAX up 1 pct

* Unicredit up 1.8 pct after profit beat

* Profit warning sinks Pandora 18 pct (Updates prices, adds quotes, details, graphic)

LONDON, Aug 7 (Reuters) - European shares bounced back strongly on Tuesday as investors cheered UniCredit results but gave Germany's Commerzbank a damp reception, while a profit warning sank Pandora's stock.

Europe's gains came on the heels of a stronger trading session in Asia as investors' focus shifts from a murky, complex trade war to company earnings which they can more easily pin down and price in to markets.

UniCredit shares rose after Italy's biggest lender by assets reported second-quarter profits fell less than expected.

"Trend of under-promising and over-delivering continues," wrote Jefferies analysts.

Unicredit traded 1.8 percent higher by 0830 GMT as investors also digested the bank's weaker capital buffer. Its CET1 ratio fell due to the sharp sell-off in Italian government bonds on political upheaval.

The Italian index rose 1 percent, out-doing the pan-European STOXX 600 which gained 0.4 percent.

Commerzbank shares fell 1.8 percent to the bottom of Germany's DAX, however, as investors reacted badly to a weaker-than-expected capital buffer, and its forecast of higher costs for its full year of 2018.

"We think investors will be disappointed by the revised cost guidance, as this is the main element in managements control, but note that expectations are already incredibly low for Commerzbank," said Citi analysts.

Overall bank earnings have surprised positively against relatively pessimistic expectations.

The biggest disappointment came from Danish jewellery maker Pandora, which sank 19 percent to a four-year low after cutting its sales and profit margin guidance for this year and announcing nearly 400 job cuts.

"Another profit warning just a few months after the updated mid-term targets may put the credibility of the current strategy and management team in question," said Berenberg analysts, warning of a likely "free-fall" in the stock today.

Pandora is suffering from fewer people visiting shopping malls in its key U.S. market.

Industrial machinery and equipment maker Oerlikon jumped 9.2 percent after reporting orders, sales and earnings beats and hiking its order outlook.

"European results have generally been good and reflect good underlying demand," said Christopher Dyer, director of global equity at Eaton Vance.

"Sales in particular have been very healthy - beating estimates - while earnings per share has not quite ket up with sales growth."

Schaeffler shares climbed 6.6 percent after the car parts maker raised sales guidance for its industrial division.

It helped boost the autos sector up 1.4 percent, among top gainers. Germany's DAX also jumped 1 percent thanks to its carmakers.

Daimler shares rose 1.7 percent after the carmaker said it has dropped plans to expand its Iran business in reaction to renewed U.S. sanctions.

Meanwhile Europe's biggest pure online fashion retailer Zalando fell 6.2 percent after it trimmed its sales and profit outlook for the year, following results that missed expectations.

A downgrade by Credit Suisse to "underperform" bruised shares in French IT services firm Atos, down 7.4 percent.

Analysts at the Swiss broker said "financial arrangements" account for around 30 percent of recent free cash flow and the majority of the recent improvement in cash flow.

(Reporting by Helen Reid Editing by Danilo Masoni and Raissa Kasolowsky)