CORRECTED-STOXX 600 logs best day in over 4 years as Iran truce fuels relief rally (April 8)

By Ragini Mathur and Twesha Dikshit

April 8 (Reuters) - European shares jumped more than 3% on Wednesday after U.S. President Donald Trump agreed to a two-week ceasefire with Iran, sparking a relief rally across global markets with investors optimistic trade through the Strait of Hormuz could resume soon.

The pan-European STOXX 600 index .STOXX was up 3.7% at 612.32 points, posting its biggest one-day gain in more than four years.

Regional bourses also moved higher, with Germany's DAX <.GDAXI> climbing 4.7% while France's CAC 40 .FCHI gained 4.5%.

The agreement came less than two hours before a U.S. deadline for Tehran to reopen the Strait of Hormuz, sending oil prices tumbling below $100 a barrel. Still, some worries lingered as Israel continued to strike Lebanon.

"Investors should not be surprised if we do see some period of re-escalation in rhetoric, or if some of the energy flows through the Strait of Hormuz perhaps disappoint what people might hope for. But overall, the announcement is a positive development," said Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management.

Europe's fear gauge, the STOXX volatility index .V2TX, fell below 25 points for the first time in over three weeks.

European equities have come under pressure since the U.S.-Israel war against Iran, with the region's heavy dependence on oil imports through the largely blocked passage making it vulnerable to energy shocks.

The gains on Wednesday were broad-based, with travel .SXTP, industrials .SXNP, and banking <.SX7P> advancing between 5.7% and 7.1%. They are typically seen as prime beneficiaries of lower energy costs and falling bond yields.

Barclays' analysts said they expected limited earnings impact for European banks, and maintain their positive industry view on the sector despite a near-term recovery depending on a ceasefire.

"Investors are not turning bearish, but appetite to 'buy the dip' remains limited absent a clear de-escalation," they said in a note.

Steelmakers gained with the sector having come under pressure as the cost of production is highly dependent on energy prices. ArcelorMittal MT.AS rose 12.8% to the top of STOXX 600, while Germany's Salzgitter SZGG.DE and Thyssenkrupp TKAG.DE added 15.2% and 9%, respectively.

The technology sector jumped 5.6%, underpinned by strong performances among chipmakers. Shares of Infineon IFXGn.DE, Soitec SOIT.PA, ASML ASML.AS and SUSS Microtec SMHNn.DE were up between 8.9% and 11.8%.

Energy stocks .SXEP were the sole outliers, down 2.3%. Shell SHEL.L fell 4.7%, after the oil major cut its first-quarter gas production outlook while signalling a surge in oil trading profit and a dent to short-term liquidity.

Traders are currently pricing in two quarter-point rate hikes from the European Central Bank by year-end, according to LSEG data.