* STOXX 600 up 0.5 pct at 2-mth high
* Euro zone stocks eye best week since May 2017
* Financials, autos drive gains
* U.S. non-farm payrolls in focus (Adds detail and quote, updates prices)
LONDON, Jan 5 (Reuters) - European shares powered higher on Friday, with the British and Swiss benchmarks hitting records, propelled by optimism for a strengthening regional economy and gains in U.S. equities overnight.
The pan-European STOXX 600 index was up 0.5 percent by 0944 GMT, holding at a two-month high, while euro zone blue chips rose 0.9 percent, building on strong gains in the previous session.
The first trading week of the new year was shaping up to be the best for euro zone stocks since last May, as the index has shrugged off a strengthening of the single currency that can dampen export earnings.
"There is little impediment for continued gains whilst economic conditions that we've seen over the last few months continue, and there's every reason to expect that to continue to be the case," Ken Odeluga, market analyst at City Index, said.
"Every now and then when things are right you do get quite spectacular advances."
U.S. jobs numbers on Thursday showed U.S. private employers added more jobs than expected in December, propelling the Dow Jones Industrial Average past the 25,000-mark for the first time. Investors were watching U.S. non-farm payrolls data due later on Friday.
Euro zone stocks were set for a weekly gain of 2.7 percent.
Markets outside of the euro zone saw several record levels broken. Switzerland's blue chip SMI index rose 0.4 percent to an all-time high, while Britain's FTSE 100 jumped to another record.
Financials drove gains in Europe on the day, with the banking index rising 0.6 percent.
"More than cyclicals we are looking for lower valued areas like banks, telecoms, energy," John Surplice, pan-European equities fund manager at Invesco Perpetual, said.
"The areas we are cautious on are the ones we would deem bond proxy sectors - regulated utilities, food and beverage, long duration assets that have been re-priced significantly during the crisis," Surplice added.
European autos was the top-performing sector, up 1.4 percent, while every other sector traded in positive territory.
Shares in Fiat Chrysler, Peugeot and Volkswagen were among the biggest gainers, up 2.8 percent to 4.2 percent.
However, shares in British car insurer Admiral Group tumbled around 5 percent to the bottom of the STOXX on the back of a downgrade from JPMorgan as well as some weak UK new car sales data.
Dialog Semiconductor was another underperformer, down 4 percent after top customer Apple said that its products were hit by a chip flaw.
(Reporting by Kit Rees and Helen Reid; Editing by Tom Pfeiffer and Alison Williams)