* Healthcare stocks rise after U.S. peers rallied overnight
* Deutsche Bank shares turn positive after initial losses
* Deutsche seen avoiding capital increase
* Germany's DAX still some 20 pct below April record high
By Sudip Kar-Gupta
LONDON, Oct 8 (Reuters) - European shares held steady on Thursday, propped up by a rise in healthcare stocks while Deutsche Bank also recovered from initial losses on expectations it would avoid having to raise new capital.
The pan-European FTSEurofirst 300 index and the euro zone's blue-chip Euro STOXX 50 index were both up 0.2 percent, while Germany's DAX rose 0.4 percent.
Deutsche Bank shares initially fell around 2 percent after the company said late on Wednesday that it was bracing for a record pre-tax loss of 6 billion euros ($6.8 billion).
However, the stock then recovered to stand 2 percent higher with some analysts arguing the company's decision to cut or skip dividend payments would enable it to avoid a capital increase.
Other traders and analysts said Deutsche Bank's plans to take large writedowns at its investment banking unit made sense as a "kitchen-sinking" exercise, covering all contingencies. They saw it in the context of the company's overall strategy to restructure and shrink its global spread.
"Whenever a company clears everything out in one go, it helps to remove the uncertainty around it. They've taken decisive action," said Zeg Choudhry, managing director at LONTRAD.
European equities were also propped up by a rise in major healthcare stocks, which advanced after U.S. biotechnology companies rallied overnight in New York.
The FTSEurofirst is up by around 4 percent since the start of 2015 although it fell nearly 10 percent in the third quarter, partly due to concerns of an economic slowdown in China.
The DAX is also nearly 20 percent below a record high reached in April of 12,390.75 points.
Markus Huber, senior sales trader at Peregrine & Black, said some investors with "long" positions betting on a rise in the market may look to sell out and cash in at this juncture.
"Overall sentiment is neutral today. In light of the recent strong run-up in share prices there is plenty of less positive news out which will provide 'Longs' with a welcome excuse to take some money off the table," said Huber.
($1 = 0.8857 euros)
Today's European research round-up (additional reporting by Alistair Smout and Alasdair Pal; Editing by Keith Weir)