(Adds detail on earnings and economic data, updates prices)
* STOXX Europe 600 index flat by midday
* Ocado, Alfa Laval among top gainers
* UPM-Kymmene, Seadrill slump after updates
By Atul Prakash
LONDON, Jan 31 (Reuters) - European shares headed for their third straight month of gains on Tuesday, underpinned by a rally in British online supermarket Ocado and Swedish engineer Alfa Laval after encouraging earnings updates.
The pan-European STOXX 600 index was trading flat by 1150 GMT, after falling more than 1 percent on Monday. It has gained around 0.5 percent so far in January after rising in the previous two months.
Ocado shares were more than 9 percent higher, the top gainer on the index, after reporting a 3.3 percent rise in full-year core earnings and saying that it was well positioned for growth.
IHS Markit said on Monday that Ocado was the most shorted European company with earnings this week.
"These strong top-line numbers will make rival grocers and German discounters green with envy, especially when pre-exceptional profits before tax grew strongly, implying significant margin expansion," said Mike van Dulken, head of research at Accendo Markets.
Alfa Laval, which has been under pressure from low demand in the oil, gas and marine sectors, advanced 7.4 percent to an 18-month high after posting a fourth-quarter order intake and core profit ahead of analyst forecasts.
According to Thomson Reuters data, the fourth-quarter results season is looking promising overall, with earnings of companies in the STOXX Europe 600 collectively seen rising by more than 11 percent from a year ago, following a recovery in economic growth and a pick-up in inflation.
Other company updates disappointed, however.
UPM-Kymmene was down 9.7 percent, the biggest faller in the STOXX 600 and on track for its biggest one-day fall since June last year, after the Finnish pulp and paper maker gave a cautious outlook for this year.
Fragrance and flavour maker Givaudan fell around 4 percent after posting weaker-than-expected net profit in 2016 and proposing a dividend below expectations, amid slowing demand in emerging markets.
Rig firm Seadrill slumped 15 percent and headed for its biggest daily fall since early 2016 after saying that talks to restructure its $8 billion debt had taken longer than expected.
Once the top offshore driller by market capitalisation, Seadrill's market value has plunged more than 90 percent in the past three years, hit by a halving of crude prices since mid-2014 that has cut demand from oil firms.
By sector, European healthcare was down 0.5 percent after U.S. company Pfizer, which closed its $14 billion acquisition of Medivation Inc in September, reported a 3 percent fall in quarterly revenue.
Reporting by Atul Prakash; Editing by Dominic Evans and John Stonestreet