* LVMH shares up as much as 2.7 percent on leather, fashion
* LVMH's poor jewellery performance hits Bulgari, Richemont
* PPR shares rise 3 percent ahead of Friday's results
By Astrid Wendlandt, European Luxury Goods Correspondent
PARIS, July 28 (Reuters) - Europe's luxury stocks rose on Tuesday after a solid set of results from LVMH and Morgan Stanley upgraded Gucci parent PPR.
LVMH shares gained as much as 2.8 percent after the world's biggest luxury goods group posted stronger-than-expected earnings from its leather goods and fashion division. By 1200 GMT, they were up 0.6 percent at 61.65 euros in a flat European personal and household goods sector.
PPR shares, meanwhile, rose as much as 5 percent and by 1200 GMT stood 3 percent higher at 67.38 euros.
Improved sentiment towards the luxury sector also benefited Hermes, the world's second-largest luxury goods group by market value, which gained 1.1 percent to 104.60 euros.
During times of economic uncertainty, results show consumers prefer strong well-established brands such as Louis Vuitton, Hermes and Gucci which they see offering more value for money than younger, more fickle fashion and leather brands.
Chic handbag maker Louis Vuitton, which generates more than half of LVMH's operating profit, continued to enjoy double-digit sales growth during the first half.
"This (sales) trend (of proprietary retail distribution and Louis Vuitton), coupled with an operating profit (from fashion and leather goods) ahead of our estimates strengthened the defensive profile of the stock and explains today's positive share price reaction," S&P Equity Research said in a note.
ALL EYES ON GUCCI
The news bodes well for PPR's Gucci Group, which owns brands Yves Saint Laurent, Gucci, Balenciaga and Stella McCartney.
PPR is due to publish first-half results on Friday.
Morgan Stanley said it believed the Gucci brand, which generates about 40 of the Gucci Group's operating profit, had been overlooked by the market as investors were spooked by the conglomerate structure and gearing of parent PPR.
The broker upgraded the stock to "overweight" from "equal weight" and raised its price target to 76 euros from 58 euros, estimating that the price-to-earnings ratio of the Gucci brand at around 12 times presented a 25 percent discount to its peers.
But if leather goods and fashion stocks enjoyed a small rally, investor's sentiment towards companies more closely associated with "hard luxury," such as watches and jewellery, was affected by LVMH's poor first-half performance.
Operating profit from LVMH's watch and jewellery unit fell 73 percent in the first half on sales down 34 percent on a like-for-like basis.
The result had a knock-on effect on Italian jewellery group Bulgari, whose shares were down about 1 percent, while shares in Cartier parent Richemont fell in early morning trade and were flat around 1200 GMT.
(Editing by Marie Maitre)