* Chinese data soothes investors nerves, focus turns to GDP
* European stock volatility falls to its lowest since Jan 2018
* Lufthansa delivers bigger-than-expected Q1 loss
* Zalando rallies after upbeat profit forecast (Updates to close, adds details)
By Agamoni Ghosh
April 16 (Reuters) - European shares ended at an eight-month high on Tuesday, bolstered by banking and financial stocks, upbeat data from China and the improving economic mood in Germany.
The pan-European STOXX 600 index rose for a fifth-straight session led by the Swiss index and Germany's trade-sensitive DAX.
The index of STOXX 50 volatility, the main gauge of market anxiety in Europe, fell to its lowest since mid-January 2018 helped by a shortened trading week for the Easter holidays.
The banking, financial and insurance sectors provided the major boost, mostly drawing from earnings of big Wall street banks, with JPMorgan Chase & Co kicking off U.S. earnings on a strong note last week.
Bank of America Corp's earnings also topped expectations but Goldman Sachs Group Inc and Citigroup Inc disappointed with revenue misses, although both lenders beat quarterly profit estimates.
"We saw a sort of a selloff in Wall Street giants Goldman Sachs and Citigroup but if you look at the bank earnings, you can clearly see they were really really strong," said Naeem Aslam, chief market analyst at TF Global Markets (UK) Ltd in London.
"This optimism is feeding into the European banking sector as well. When they start to announce their earnings, the expectations are high that we are going to see some good numbers coming out of European banks after a long time."
Italy's top bank, UniCredit SpA, rose over 3 percent after it and two subsidiaries agreed to pay $1.3 billion to U.S. authorities to settle investigations of violations of U.S. sanctions on Iran and other countries.
Italy's FTMIB however, barely scraped through into positive territory as the Bank of Italy's warning of the country's deficit possibly breaching European Union regulations in 2020 weighed on the bank-heavy index.
Aiding sentiment was better-than-expected home price numbers from China for March and a ZEW survey showing that mood among German investors improved in April.
All eyes are now on Chinese quarterly GDP data due on Wednesday as firmer data in the world's second-largest economy may imply an improvement in the global export picture, benefiting export-oriented economies in the region like Germany.
Among individual stock movers, Zalando took the spotlight, rising more than 10 percent and emerging as the best performer on the STOXX after the e-commerce company said it expected to post an operating profit for the first quarter.
Steel pipe maker Tenaris rose over 3 percent after an Argentine court reversed a decision against the company's chief executive and chairman.
Germany's biggest airline Lufthansa had fallen earlier in the day after posting a loss in the first quarter hurt by rising fuel costs and over-capacity in Europe.
The carrier reversed losses to end about 1 percent higher with traders saying the bad news ailing the airline and the broader industry was priced in after easyJet's warning last week and WOW airline's bankruptcy in late-March.
Among the biggest drags on the index were oil stocks including BP, Total and Royal Dutch Shell tracking declining crude prices.
On London's FTSE 250, Galliford Try slumped 20 percent after the house-builder said it was undertaking a strategic review of its construction business which would reduce its size and lead to a fall in annual profit.
If the firm ditched its infrastructure arm and focused on house-building alone, it might do better, since the record over the past year for the division has been grim, Chris Beauchamp, chief market analyst at IG, wrote in a note. (Reporting by Medha Singh, Susan Mathew and Agamoni Ghosh in Bengaluru Editing by Andrew Heavens and Andrew Cawthorne)