UPDATE 2-European shares pause as Brexit deal reports swirl

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

* UK-EU negotiations twisting and turning in Brussels

* Gains in Volkswagen buoy auto sector, German stocks

* Roche rises after boosting FY profit forecast (Updates to close)

By Sruthi Shankar

Oct 16 (Reuters) - European stocks pulled back slightly on Wednesday from their strongest closing high in more than a year as clashing headlines on Britain's last-minute efforts to forge a divorce deal with the European Union left investors hanging on the outcome.

Hopes of a breakthrough took the pan-European STOXX 600 to its highest close since May 2018 on Tuesday, but the index closed down 0.1% with London's exporter-laden FTSE 100 , which tends to fall when the pound gains, lagging the most with a 0.6% decline.

A report that the main stumbling block to a deal had been removed to news that the talks had hit a "standstill" made for a choppy trading session, but expectations of a no-deal Brexit faded.

"It's all about which way the Brexit wind is blowing," said Edmund Shing, global head of equity derivatives strategy at BNP Paribas. "We'd see a lot of more interest in domestic cyclical names (if there was a deal)."

Britain's domestically focused midcaps, which have rallied 5% in the past three sessions to reach their highest level in a year, ended flat on Wednesday, while Irish stocks , which have come to be seen as a gauge of Brexit sentiment, fell 0.5%.

Any new deal will still have to go to a fractious British parliament.

Among other regional indices, Germany's GDAXI gained 0.3%, while France's CAC 40 was flat.

European automakers rose 1.5% as industry data showed car registrations in the bloc rose 14.4% in September, led by robust gains at major brands Volkswagen and Renault.

London-listed shares of Rio Tinto fell 1.7% after the miner said its iron ore shipments rose 5%, but it cut its bauxite and alumina production forecast for the year.

Rio's shares also took a hit from China iron ore plunging to a six-week low following a weak demand outlook.

The wider European mining sector was down 0.8%, while the financial services shed more than 1% on declines in British stocks.

Investor focus shifts now to Europe's earnings season, which gets under way in earnest next week. Analysts expect an earnings recession to deepen as companies struggle with uncertainties around Brexit, a protracted U.S.-China trade spat and Germany's manufacturing recession.

STOXX 600 companies are now expected to report a drop of nearly 3.7% in third-quarter earnings, worse than the 3% fall expected a week ago, I/B/E/S data from Refinitiv showed.

Shares in Dutch semiconductor equipment maker ASML , which has surged over 70% this year, declined 4.5% after reporting higher-than-expected quarterly profit and bookings.

Shares in Thyssenkrupp jumped 4.6% after a report said rival bidders Kone and Blackstone teamed up with potential partners to bid for the German group's elevator business. (Reporting by Sruthi Shankar in Bengaluru and Josephine Mason in London; Editing by Alison Williams)