* STOXX 600 hits two-week high
* Financials, industrials drive gains
* Telecom Italia up 3 pct as state lender to buy stake
* Citi upgrades UK, downgrades continental Europe
* European economic surprise index falls: https://tmsnrt.rs/2q73CmS
* European benchmarks' performance in 2018: https://tmsnrt.rs/2q7NMsf (Updates prices, adds quotes, details)
LONDON, April 5 (Reuters) - European stocks jumped on Thursday as investors bought back into risky assets as concerns over trade tensions ebbed.
The STOXX 600 rose 1.5 percent to a two-week high in early deals, buoyed by financials and industrials stocks, riding a wave of gains that pushed Wall Street and Asian stocks up overnight.
Germany's DAX, the market most exposed to China, jumped 1.7 percent. After the FTSE 100, the top German stock index has been the worst-performing in 2018. https://tmsnrt.rs/2q7NMsf
After a retaliatory blow from China against U.S. tariffs drew conciliatory noises from Washington, some investors calculated a full-blown trade war would be averted.
Citi strategists said it was too early to call a bear market and stuck with an estimate for global equities to rise 8 percent by year-end.
Basic resources and tech stocks, the sectors seen as most vulnerable to higher trading costs, led gains on Thursday. Chipmakers Infineon and ASML, telecom equipment maker Nokia, and software company SAP , were the top performers, up 1.8 to 3.8 percent.
Heavyweight financials, a bellwether of investors' perception of global market risks, added the most points to the index. Top gainers included HSBC, BNP Paribas and Santander.
Big industrial exporters Siemens, ABB, and Airbus rose 1.8 to 3.5 percent. Airbus could benefit from Chinese tariffs on U.S. aircraft imports, which could hurt arch-rival Boeing.
Trade concerns aside, dealmaking and results continued to drive individual stock moves.
Telecom Italia shares gained 2.9 percent after sources told Reuters that Italian state lender CDP was set to buy a stake in the telecom company.
Telecom Italia's biggest shareholder Vivendi rose 1.9 percent. Both companies declined to comment.
Video games maker Ubisoft jumped 8.6 percent. Traders pointed to the success of its latest video game Far Cry 5, which broke franchise sales records according to one analyst.
Global equity strategists at Citi downgraded continental European equities to "neutral" and upgraded UK equities to "overweight", arguing recent underperformance and cheap valuations made the UK market relatively more attractive.
Slowing momentum in economic indicators has sparked concern among investors in European equities whose holdings had been boosted by a "Euroboom" trade last year when the region delivered strong growth.
The economic surprise index for the euro zone has fallen to its lowest in nearly two years.
(Reporting by Helen Reid, editing by Julien Ponthus and John Stonestreet)