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UPDATE 1-European shares hit two-month high as EU picks Lagarde to head ECB

Amy Caren Daniel and Medha Singh

(For a live blog on European stocks, type LIVE/ in an Eikon news window)

* EU leaders choose France's Lagarde as next ECB chief

* Euro zone bond yields hit record lows

* Defensive sectors outperform European markets

* Henkel gains on Goldman Sachs upgrade (Adds comment, updates prices)

July 3 (Reuters) - Hopes that European Central Bank Chief nominee Christine Lagarde would follow the dovish steps of Mario Draghi pushed European shares to a two-month high on Wednesday, and boosted high-dividend yielding defensive stocks.

If approved by the European parliament, Lagarde will succeed Draghi when his term expires at the end of October.

The pan-European STOXX 600 index jumped 0.60% by 0815 GMT to hit its highest level since May 1, with the defensive food & beverages, real estate and utilities companies rising more than 1% each.

Government bond yields in much of the euro zone fell to fresh record lows on the news. Bank stocks, which tend to suffer in a low interest rate environment, underperformed.

High-dividend stocks including AB InBev, British American Tobacco, Diageo and Unilever powered the STOXX as investors searched for yield.

"Lagarde, who has built a solid experience fighting against the never-ending financial crisis, is expected to walk on Mario Draghi's dovish footprints to help the Euro area cope with the weakening global economy," said Ipek Ozkardeskaya, senior market analyst at London Capital Group.

The benchmark index has gained 1.5% this week, continuing its strong run from June after the ECB and the U.S. central bank signalled more accommodative measures to counter the impact of a protracted U.S.-China trade war.

The rally this week was mainly on optimism from news over the weekend that the United States and China restarted talks to resolve a trade dispute that has roiled financial markets for at least a year.

"The United States and China need to shed some light on their trade truce that they reached over the weekend. They sent positive signals but everybody is still waiting for specifics," said Florian Hense, an economist at Berenberg in London.

Putting a damper on markets was news that the Commerce Department's enforcement staff was told this week that China's Huawei should still be treated as blacklisted, a stark difference from President Donald Trump's statement over the weekend vowing to ease a ban on sales to the firm.

European chipmakers STMicroelectronics, Siltronic , and Infineon fell between 0.5% and 2.5% on the news.

The biggest gainer on the STOXX 600 was Britain's biggest sportswear retailer JD Sports, which rose 3.2%, after the company said it was on track to at least meet market expectations for annual profit.

German consumer goods company Henkel rose 1.8% after Goldman Sachs upgraded the stock to "buy" from "neutral" as the brokerage expects the company's recovery in the second half of the year to drive future growth. (Reporting by Amy Caren Daniel in Bengaluru; Editing by Arun Koyyur and Saumyadeb Chakrabarty)