UPDATE 1-Banks drive European stocks to 10-week high as await U.S. tax plan

* STOXX 600 up 0.3 pct to highest since mid-July

* Alstom surges after striking rail merger deal

* Banks up 1.3 percent as tax reform plan expected

* Cyclicals gain as reflation trade reignited

* Banco Sabadell, Caixabank recover from Catalan slump (ADVISORY- Follow European and UK stock markets in real time on the Reuters Live Markets blog on Eikon, see cpurl://apps.cp./cms/?pageId=livemarkets)

LONDON, Sept 27 (Reuters) - European stocks climbed to a 10-week high on Wednesday led by banks ahead of an update on U.S. tax reform, while Alstom shares surged after its rail merger with Siemens.

The pan-European STOXX 600 gained 0.3 percent to hit its highest level since July 20, while euro zone stocks rose 0.4 percent.

Britain's FTSE was up 0.3 percent.

Banks hit a six-week high, up 1.3 percent, as the prospect of fiscal stimulus in the U.S. resurfaced, with all eyes on U.S. President Trump's update on tax reform plans expected after European trading hours.

But analysts were sceptical of the level of detail which would emerge. "We're not holding our breath on today's tax plan prompting markets to seriously reprice U.S. reflation prospects," said ING analysts.

The cyclical sectors which had surged on the market's "Trumpflation" expectations were nonetheless top gainers on the day, with basic resources stocks also higher.

A weaker euro also supported indexes which had dipped this summer as the strong currency dented earnings expectations.

Merger and acquisition news stole the spotlight with Alstom shares hitting their highest level in more than six years after the French industrial group struck a deal to merge rail operations with Germany's Siemens.

Alstom pared early gains to rise 4.6 percent, while Siemens led gains on the DAX, up 2 percent.

Analysts combed through the fine print of the deal, saying it made strategic sense in a consolidating rail industry globally with competition heating up, but pointing to potential problems in cost-cutting plans.

"Siemens-Alstom targets annual synergies of 470 million euros after four years, which looks overly ambitious," said Deutsche Bank analysts, adding politicians in France and Germany were likely to resist layoffs.

Spain's Banco Sabadell and Caixabank, which had suffered as tensions over the Catalan referendum simmered, recovered, were up 5 and 3 percent respectively, after the government said police would take control of voting booths in Catalonia to thwart it.

Broker downgrades drove the worst performers. Swedish retailer ICA sank 4.9 percent after SEB cut it to "sell", and Electrolux fell 3 percent after Goldman Sachs cut it from its pan-European "buy" list.

Overall, second-quarter earnings for the STOXX 600 were expected to grow 16.4 percent compared to the same period last year, the latest Thomson Reuters data showed.

The strengthening euro had led analysts to cut earnings expectations for Europe, but Goldman Sachs' head of European equities Sharon Bell still expected earnings to grow 15 percent in 2017, making it the best year since 2010.

(Reporting by Helen Reid; editing by Danilo Masoni/Alexander Smith)