UPDATE 2-European shares finish at 2-week low but shave losses on Trump's China trade comments

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* Trade deal with China may happen sooner than expected - Trump

* STOXX closes down 0.6%

* Market on course for first weekly loss in six

* Tech, travel biggest loser among major sub-sectors

* Tobacco companies rally (Updates to close)

By Susan Mathew and Sruthi Shankar

Sept 25 (Reuters) - European shares closed at a two-week low on Wednesday on investor fears about an impeachment inquiry into U.S. President Donald Trump and worsening rhetoric on U.S.-China trade, but shares did shave losses in late trade when Trump said a trade deal with China could happen sooner than expected.

London stocks cut almost all of their losses and ended steady, boosted by a 1% slide in the pound and a rally in tobacco companies.

The pan-European stocks index lost as much as 1.4% during the session but closed down 0.6% after recovering some ground in the last hour of European trading on Trump's comment about the possibility of a trade deal with China.

Trump made the comment to reporters a day after delivering a stinging rebuke to China's trade practices at the United Nations General Assembly.

Stocks were also pressured by political uncertainty after Democrats in the U.S. Congress moved to launch a formal impeachment inquiry.

The trade-sensitive tech sector was among the biggest decliners, down 1.2%, albeit well-off session lows.

Semiconductor shares including AMS and ASM International lost, while export-reliant Germany slipped 0.6%, putting the STOXX overall firmly on course for its first weekly fall since mid August.

Equity markets have been rankled by a slew of poor euro zone economic and political news this week. Data on Monday showed business growth had stalled across the currency bloc.

Weak PMI surveys, recent profit warnings from European companies, U.S. political uncertainty and fresh Brexit twists were leading markets to take a pause, said Will James, senior investment director for European equities at Aberdeen Standard Investments.

The pound was battered as investors priced in many more months of Brexit and general election risk a day after UK's Supreme Court ruled that Prime Minister Boris Johnson's decision to suspend parliament was unlawful.

That helped Britain's FTSE 100 outperform regional peers, as did a rally in British American Tobacco and Imperial Brands after merger talks between U.S. rivals Philip Morris and Altria collapsed.

After two days of solid gains, travel company TUI was the biggest decliner on the travel and leisure which logged it biggest daily fall in six weeks.

Shares in France's EDF dropped 6.6%, to the bottom of the STOXX 600, after the state-controlled power group said its Hinkley Point C nuclear plant in Britain could cost an extra $3.6 billion. (Reporting by Shreyashi Sanyal, Sruthi Shankar and Susan Mathew in Bengaluru; Editing by Bernard Orr and Patrick Graham and David Gregorio)