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UPDATE 1-U.S. tax bill delivers shot in the arm for European shares

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LONDON, Dec 4 (Reuters) - European stocks rallied strongly on Monday after the U.S. Senate passed a tax package delivering significant fiscal stimulus, which investors had anticipated would give extra legs to the bull run in equity markets.

The tax overhaul delivered some relief in early European trading after benchmarks hit multi-week lows on Friday.

Strong gains in the U.S. dollar helped Germany's dollar-exposed DAX shoot up from a two-month low, up 1.3 percent. The euro's strengthening has weighed on earnings expectations for stocks across the euro zone this quarter.

The pan-European STOXX 600 gained 0.8 percent while euro zone blue chips jumped 1 percent, set for their best gains in five weeks.

Bank stocks, seen as the biggest beneficiaries of tax cuts, jumped 1.1 percent on the day. HSBC, BNP Paribas and Santander were among the largest boosts to the index, up 1 to 1.7 percent.

"They are the main beneficiaries of rising interest rates, and tax cuts should boost demand and interest rate increases. Banks are anticipating that a little bit," said Angelo Meda, head of equities at Banor SIM in Milan.

"With this tax deal it looks like markets are pushing ahead... and could pick up speed into the end of the year," he added, saying the ingredients for a year-end rally of 3 to 4 percent were there.

Autos stocks, which also have large exposures to the U.S., shot higher, leading sector gains with Fiat Chrysler top of Italy's index, up 3.2 percent.

Elsewhere a revival in M&A deals moved some stocks. Denmark's largest insurer Tryg jumped 3.8 percent after agreeing to buy unlisted competitor Alka Forsikring.

Italian cable maker Prysmian meanwhile dipped 0.6 percent after agreeing a $30 per share all-cash deal to buy Kentucky-based rival General Cable.

Meda said investors were disappointed at the company's potential rights issue of up to 500 million. "The price was higher than expected," he added, saying investors awaited the conference call for further clarity on the deal.

Dialog Semiconductor tumbled 16.4 percent to a 17-month low after the iPhone supplier said top customer Apple could be working on building its own power-management chips, though it said it saw no impact on its business next year.

Chipmaker ams meanwhile led gainers, up 5.5 percent after Barclays raised the stock to 'overweight', saying it is the leading player in wafer level optics and the strongest growing in the bank's sector coverage.

Ams shares are up 220 percent year to date, easily the best STOXX 600 performers.

Airbus rose 3.4 percent after chief Fabrice Bregier said the company still expects to deliver more than 700 aircraft to customers in 2017, a production record.

(Reporting by Helen Reid; Editing by Kit Rees and Raissa Kasolowsky)