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UPDATE 2-Brexit hopes, trade talks pull European shares higher

Medha Singh and Lisa Pauline Mattackal

* Ireland says can see path to a Brexit deal

* Dublin's ISEQ up 2.7%, FTSE mid-cap jumps 2.2%

* Germany's SAP eyes best day since April after CEO exit

* Hugo Boss hits lowest in a nearly a decade

* Second day of U.S.-China trade talks resume on Friday (Adds comments; updates prices)

Oct 11 (Reuters) - European stocks rose for the third straight day on Friday as a surprise breakthrough in Brexit negotiations with Ireland opened the door for a smoother exit for Britain from the European Union.

A JPMorgan index that tracks domestically-focused UK stocks was headed for its best day since it was created in 2017, while Ireland's main stock index added 2.7% and was on track for its biggest one-day percentage gain this year.

German shares eyed their best day in four months, also helped by gains for SAP, Europe's most valuable technology company, after its long-term CEO stepped down.

The chief Brexit negotiators of the EU and Britain met on Friday, hours after Prime Minister Boris Johnson and his Irish counterpart unexpectedly said they had found a pathway to a possible deal at last-ditch talks.

Investment bank JPMorgan said it now saw a 50% chance of a withdrawal agreement being struck with a "modified/time-limited" Irish backstop. It had previously put the likelihood at just 5%.

"The psychological take on it for markets is that there is a real hunger to see some sort of breakthrough, even if it's just a small one that can be built on," said Ken Odeluga, market analyst at City Index.

"But on the other hand, there's not a great deal of evidence yet that a breakthrough has truly arrived."

London's exporter-heavy FTSE 100 index erased early losses to trade up 0.2%, with stocks such as homebuilders and UK-focussed banks with the greatest sensitivity to Brexit updates among the biggest gainers.

Signs of an imminent divorce deal after three years of chaotic negotiations were enough to push London-listed companies with exposure to the domestic economy to a premium over the blue-chip index for the first time since May.

The pan-European STOXX 600 climbed 1.3% and was headed for its best week in nearly two months, with rising hopes for at least a partial U.S.-China trade deal adding to investor sentiment.

U.S. Treasury Secretary Steven Mnuchin, Chinese Vice Premier Liu He and other senior officials will resume discussions on Friday.

Germany's SAP rose 7.7% to its highest level in more than two months after it released a strong set of third-quarter results and said CEO Bill McDermott was stepping down after a decade at the helm.

Publicis tumbled 14.2% to a seven-year low after the ad firm lowered its full-year sales target for the second time in 2019. Its London rival WPP lost 4.4%.

Fashion house Hugo Boss sank 13% to its lowest in almost a decade after the company cut its 2019 earnings forecast and reported third quarter results below expectations.

Those numbers came hard on the heels of a strong sales update from Louis Vuitton owner LVMH on Thursday.

(Reporting by Medha Singh in Bengaluru; Editing by Bernard Orr and Patrick Graham)