* STOXX 600 up 1.1 pct at close
* Banks lead relief rally
* Fiat Chrysler jumps on M&A chatter
* RWE gains after strong results, better outlook (Adds detail, updates prices at close)
LONDON, Aug 14 (Reuters) - European shares rose on Monday after geopolitical tension had sent them to their worst weekly losses of the year, with a softening currency buoying euro zone firms.
The pan-European STOXX 600 ended the session 1.1 percent higher, its best day in one month, while blue-chips jumped 1.3 percent. Tension between the United States and North Korea sent them 2.7 percent lower last week, their worst weekly loss this year.
Banks, the worst hit last week, were among the top-gaining sectors, up 1.5 percent, with Banco de Sabadell , Deutsche Bank and Commerzbank all up 3.1 to 3.6 percent.
"Financials are a high beta sector so whenever there's a market sell-off they do worse," said Caroline Simmons, deputy head of the UK investment office at UBS Wealth Management.
"You get these reversals afterwards: the pick-up in volatility is reversing and cyclicals are gaining. We're seeing a return to fundamentals, which we think are quite good."
The VSTOXX, Europe's main gauge of equity investor anxiety, fell back to erase all of Friday's spike and remained near historic lows.
M&A chatter boosted Fiat Chrysler and Danone .
Fiat Chrysler shares jumped more than 8 percent, leading autos stocks, with a trader citing an Automotive News report saying large Chinese automakers were looking to acquire the Italian company.
Danone shares gained 2.3 percent after the New York Post newspaper speculated the firm could be a bid target. A spokeswoman declined to comment on the report.
Shares in German energy group RWE rose 1.5 percent. The firm said 2017 profits would be near the top end of its forecast, after first-half results were boosted by better gas plant performance. RWE has led European utilities this year, up more than 60 percent.
Broker reports caused some significant moves as well.
UDG Healthcare fell 2.7 percent after Liberum analysts cut their target price on the stock, while travel company TUI jumped 4.8 percent after Credit Suisse upgraded it.
With 82 percent of MSCI Europe corporates quarterly results through, energy and basic materials stood out as the winners so far, while consumer cyclical and industrial companies have mostly missed analyst expectations, Thomson Reuters data showed.
Weakness in the euro also helped euro zone firms, with the Euro STOXX index jumping 1.3 percent.
Many brokers have warned a stronger euro could dent performance for euro zone exporters.
"The currency has had a little bit of an impact, but I would not over-emphasise it," Simmons said.
"If the euro continued to strengthen it could be more significant, but for now there's enough growth going on to offset it," she added.
(Reporting by Helen Reid and Kit Rees)