European shares close at highest since May as Syria strike looks less likely
* FTSEurofirst 300 up 1.3 pct to highest close since May 29
* Concerns about Syria strike recede after diplomatic moves
* Car makers rally on signs European sales stabilising
LONDON, Sept 10 (Reuters) - European shares rallied to a 3-1/2 month high on Tuesday as equities globally rose on signs that a U.S. strike on Syria, with its possible ramifications in the oil-rich Middle East, may be avoided.
Syria accepted a Russian proposal on Tuesday to give up chemical weapons and win a reprieve from U.S. strikes, easing market nerves about a possible escalation of violence in the region.
European airline stocks were the biggest winners as the news on Syria sent the oil price tumbling by more than $2 a barrel.
The pan-European FTSEurofirst 300 index closed 1.3 percent higher at 1,243.60 points, a level last seen on May 29 and just above its high on Aug. 14.
"Every side wants to defuse the tension," said Manish Singh, who helps manage more than 2.5 billion dollars worth of assets at Crossbridge Capital.
"I don't know whether it will work but for now we go with what we are hearing and seeing."
The euro zone Euro STOXX 50 index ended up 1.9 percent at 2,851.40 points in volume 35 percent higher than the index's average for the past 90 days, showing high investor participation in the rally.
Singh said he expects the Euro STOXX 50 to rise by a further 7-8 percent by the end of the year.
The widely tracked Dax index of German blue chips, however, edged below its August high at the settlement, a sign of low conviction among technical traders. The Dax ended 2.1 percent higher at 8,446.54 points.
Airlines easyJet and Lufthansa were the top risers on the FTSEurofirst 300, surging 7.2 percent and 5.9 percent, respectively, as the price of crude oil, which affects fuel costs, fell to a two-week low.
CAR MAKERS RALLY
Car makers also gained, rising 2.5 percent, as the bosses of major manufacturers including Volkswagen, PSA Peugeot Citroen, and Ford Europe said sales in Europe appeared to be stabilising after five years of decline, although recovery could be slow.
Shares in Volkswagen led the sector rally, jumping 4.8 percent in volume of more than 2-1/2 times the stock's average.
Signs of economic recovery in Europe and the United States have helped the FTSEurofirst 300 rise around 13 percent since late June.
China data also helped lift shares on Tuesday, with faster-than-expected growth in industrial output in August providing more evidence that the world's second-biggest economy is picking up after a prolonged slowdown.
The prospects of higher demand from the world's largest consumer of metals boosted the basic resources sector, which rose 1.8 percent.
"All our strategies are long on equities on our signals," said Johann Schwimann, partner at Seven Capital Management, a Paris-based hedge fund that invests based on algorithms that gauge factors such as economic data and indicators of market risk and momentum.