LONDON, April 26 (Reuters) - European banking stocks extended their rally to an almost nine-year high on Friday, helped by first-quarter earnings that beat forecasts and signalled lenders remained in a "sweet spot".

The basket of STOXX 600 banks touched 197.52, a level last reached in October 2015, and was last up 1.1%, aided by a 5.7% jump in shares of NatWest after the British bank's first-quarter results.

The index has added 16.8% this year, outpacing a 5.6% rise in the pan-European STOXX 600 and outperforming U.S. banking shares.

European bank stocks have been on a tear since they tanked in March 2023 amid the U.S. banking crisis and the collapse of Credit Suisse.

The milestone on Friday marks a significant turnaround for bank shares that have struggled since the 2008 global financial crisis amid lenders' poor profitability, regulatory scandals and a trend that has seen Wall Street firms take market share in investment banking.

Higher interest rates since 2022 have been a game changer, boosting lenders' bottom line and handing them windfalls that most have handed straight back to shareholders - further boosting their stock prices.

"They (bank shares) were very cheap for a long time ... what we're now getting from the banks is less bad news, or maybe even slightly better news, in that we haven't had that recession, we may be getting interest rate cuts, and net margins are more plump than they were on their loan book," said Russ Mould, investment director at AJ Bell.

"They're in a relatively sweet spot," he added.

Expectations that central banks will soon cut rates have raised concerns about profits, but recent earnings suggest many lenders remain in reasonably good health, with limited bad loan provisioning and margins, while falling, still healthy.

NatWest beat expectations, sending its shares up 5.5%.

That followed

forecast-beating results

from Deutsche Bank, whose shares leapt 8% on Thursday, and a relatively strong showing from Barclays . The euro zone's largest lender, BNP Paribas, reported a drop in revenues but a bigger reduction in costs. (Reporting by Lucy Raitano and Tommy Reggiori Wilkes; Editing by Alun John and Paul Simao)