MILAN (Reuters) - Shares in Italy's Banco Popolare (BAPO.MI: Quote, Profile, Research) climbed over 7 percent as first-quarter results persuaded the market the worst might be over after a year of massive losses at its Banca Italease (BIL.MI: Quote, Profile, Research) investment.

"Earnings turnaround ... with strong core revenue trend better than any Italian banks that reported so far," JP Morgan analysts said in a note.

Credit Suisse said "the encouraging operational trends ... make us more hopeful that Banco Popolare can now return to a more stable profitability path."

The shares were up 6.75 percent at 13.61 euros by 1133 GMT, off a high of 13.75 euros and one of the top gainers in the DJ Stoxx European index .PGL.STOXX.

Banco Popolare turned in first-quarter net profit of 260 million euros ($402.4 million) after the market closed on Thursday, down 9.1 percent but beating many analysts' expectations.

Its profit slid 16 percent in 2007 as it struggled with heavy derivatives-linked losses at Banca Italease, in which it has a 30.7 percent stake.

Banco Popolare and Banca Italease have refocused their business onto retail banking and lending.

"In our view, Banco Popolare will be able to attain the net profit 2008 guidance of 900 million euros," Cazenove analysts said.

Italian banks have largely weathered current financial turmoil as their domestic lending policy has tended to be conservative. Banca Italease closed out many of its derivatives contracts last year under new management and raised 700 million euros to shore up its capital.