* FTSEurofirst 300 rises 0.5 percent by midday
* Germany's DAX up 0.9 pct after setting new record high
* Fresenius Medical Care jumps on reimbursement news
LONDON, Nov 25 (Reuters) - European shares headed towards a five-year high and Germany's DAX set a new record on Monday, with airline stocks and French car makers getting a big boost from a breakthrough nuclear deal between Iran and world powers.
The deal, which will relax some western sanctions against Iran initially in return for Tehran curbing its nuclear programme, reduced the chance of military action against Iran, easing geopolitical tension and lifting risk appetite in markets globally.
Energy stocks, however, fell as the oil price dropped by as much as $3 a barrel on the deal, which included easing a ban on European insurance for shipments of Iranian oil that may help smooth Iran's crude exports to its big Asian customers.
"Iran would always be there as a black swan event risk, but the fact that this risk has diminished enormously is very good news. The knock-on effect is that oil is cheaper and airlines stocks benefit," Lorne Baring, managing director of B Capital Wealth Management in Geneva, said.
"On top of that, we have got a European Central Bank (ECB) member saying that there could be likelihood of further rate cuts, giving additional tailwind to European stocks."
ECB Governing Council Ardo Hansson was quoted as saying on Monday that the bank still had room to cut interest rates, and could move by less than the usual 25 basis points.
At 1123 GMT, the pan-European FTSEurofirst 300 was up 0.5 percent at 1,303.66 points. The index climbed to a five-year high of 1,316.42 earlier this month and is up more than 14 percent this year. Germany's DAX rose 0.9 percent to a record high.
Fuel-intensive businesses such as airlines and travel firms gained the most, with the STOXX Europe 600 travel and leisure index rising 1.6 percent as the oil price fell.
IAG, the owner of British Airways and Iberia, rose 2.7 percent, Air France KLM advanced 1.4 percent and travel group Thomas Cook gained 2.6 percent.
French car makers PSA Peugeot Citroen and Renault , which had a significant exposure to the Iranian car market before western sanctions against Tehran were toughened, gained 4.9 percent and 1.4 percent respectively. Energy shares , however, fell 0.2 percent.
"The Iran deal reduces the medium-term global geopolitical risk. In the short term, it should improve the equity market's technical picture and inflows into risky assets," Didier Duret, chief investment officer at ABN-AMRO Private Banking, said.
The euro zone's blue-chip Euro STOXX 50 index rose 0.6 percent to 3,072.92 points, with technical analysts positive on the index's outlook.
"The measured trend of the Euro STOXX 50 index remains bullish, with the slope of the 200-day moving average positive. The 3,106 high of the powerful shooting star candlestick on Nov. 7 is the key near-term resistance," Murray Gunn, head of technical analysis at HSBC Bank, said.
He saw support for the index at its recent low of 3,016 and said a move below 2,999, a low on Nov. 8, would be the first indication that the trend was changing.
Among top individual movers, German dialysis provider Fresenius Medical Care surged 7.8 percent, the top gainer on the FTSEurofirst 300, after a U.S. healthcare agency said it would not cut reimbursement rates for kidney dialysis in 2014 as was proposed in July.