* FTSEurofirst 300 hits seven-year high before losing steam
* Greek banking stocks still up 5.4 pct, extending recent rally
* European profits up 23 pct excluding energy sector -data
By Blaise Robinson
PARIS, Feb 19 (Reuters) - Europe's stock rally lost steam on Thursday, with a benchmark index retreating from a seven-year high, after Germany rejected a new proposal from Athens for an extension of its bailout programme.
The German finance ministry described the Greek proposal as "not a substantial solution" because it failed to fulfill the conditions of an EU/IMF bailout programme. Greek Prime Minister Alexis Tsipras had promised to ditch those requirements when he won an election last month.
With the programme due to expire in a little more than a week, Greece urgently needs to secure a financial lifeline to keep the country afloat beyond late March.
European stocks had rallied earlier in the session, with the FTSEurofirst 300 index climbing to a level not seen since late 2007, after Greece made its proposal for a six-month extension of the bailout.
At 1530 GMT, the FTSEurofirst 300 index was up 0.2 percent at 1,519.25 points, after gaining as much as 0.4 percent earlier. So far this year, the FTSEurofirst 300 has surged 11.1 percent, outpacing Wall Street's S&P 500, up 1.9 percent over the same period.
The Athens Stock Exchange FTSE Banks Index was still up 5.4 percent on Thursday afternoon, after rising by as much as 15 percent and extending its recent rebound from a 75 percent slump since March 2014. Alpha Bank shares were up 6.4 percent and Eurobank up 2.6 percent.
"At this point, investors think that even if a deal is reached, it won't mean that the 'Greek issue' will be resolved," Mirabaud Securities senior equity sales trader John Plassard said. "There will be serious doubts on whether Greece will fully implement the agreement."
Around Europe, UK's FTSE 100 index was down 0.1 percent, Germany's DAX index up 0.2 percent, and France's CAC 40 up 0.6 percent.
France's Capgemini surged 4.9 percent after the IT services company said it expects sales to accelerate this year with improved profitability, fueled by strength in the North American market.
Germany's Rheinmetall gained 8.3 percent. It reported a 76 percent jump in fourth-quarter orders at its problem-hit defence division.
Randstad rose 7.7 percent. The Dutch employment services group posted a 26 percent rise in fourth-quarter core earnings and said growth had picked up in the first months of 2015.
Shares in Air France-KLM fell 4.5 percent after the group warned that overcapacity on some routes and currency swings would offset gains from lower oil prices this year. It will step up cost cuts and ease a key debt reduction goal.
Half-way into the earnings season, European corporate results have been positive, with 56 percent of companies meeting or beating earnings forecasts, according to Thomson Reuters StarMine data. In absolute terms, quarterly earnings are up 8.6 percent on average and 23 percent when excluding results from the energy sector, hard hit by the drop in oil prices.
Europe bourses in 2015: link.reuters.com/pap87v
Asset performance in 2015: link.reuters.com/gap87v
Today's European research round-up
Editing by Larry King