* STOXX 600 scores best day since June 2016
* Financials, industrials drive gains
* Telecom Italia raises 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 (For a live blog on European stocks, type LIVE/ in an Eikon news window)
LONDON, April 5 (Reuters) - European stocks jumped to their highest level in more than two weeks on Thursday as investors bought back into risky assets as concerns over trade tensions ebbed.
The STOXX 600 rose 2.4 percent, scoring its best day since June 2016, buoyed by financials and industrials stocks, riding a wave of gains across global equity markets.
Germany's DAX, the market most exposed to China, jumped 2.9 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. They forecast the STOXX to rise 13 percent.
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 4.5 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 2.2 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 5.2 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 3.6 percent. Both companies declined to comment.
French payments specialist Ingenico jumped 5.8 percent after a report by Mergermarket said the firm's share price weakness meant it was likely to attract takeover interest from bidders such as Atos.
Video games maker Ubisoft jumped 10.8 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 and Danilo Masoni, editing by Julien Ponthus, John Stonestreet and Andrew Bolton)