UK Markets close in 2 hrs

UPDATE 2-Fed-fuelled rally sends European shares to six-week highs

By Amy Caren Daniel and Medha Singh

* U.S. central bank holds rates steady

* Italy leads gains among major indexes

* Deutsche Bank falls on report of U.S. probe

* Bank of England policy decision at 1100 GMT (Updates prices, adds details)

By Amy Caren Daniel and Medha Singh

June 20 (Reuters) - European stocks surged to six-week highs on Thursday, as investors piled into riskier assets after the U.S. Federal Reserve joined the growing number of major central banks signalling that a new round of monetary stimulus was likely.

The Fed's statement after European markets had closed on Wednesday signalled that a cut in interest rates might come as soon as July, sending U.S. and Asian stock markets higher, and the dollar and government bond yields lower.

The pan-European STOXX 600 index gained 0.7% by 0940 GMT, with London's FTSE 100 underperforming ahead of a Bank of England policy statement at 1100 GMT expected to continue to point in the opposite direction on rates.

Italy's FTSE MIB index was the outstanding performer of the big European markets, rallying 1%, with some analysts pointing to signs the European Commission could hold off on moves to discipline the country over rising debt.

Tumbling euro zone bond yields pointed to more respite for European public and private sector borrowers, while pressuring interest-rate-sensitive banking stocks, which lost 0.6% as the worst performing European sector.

"Falling bond yields are signalling that the monetary policy for the time being is going to be slightly more accommodative and may even be more accommodative going forward," said Florian Hense, European economist at Berenberg Bank in London.

"As we've seen inflation surprising on the downside this year, the Fed and the ECB can support expansion by cutting rates or at least signalling that it could be happening, and investors like it if the message is slightly more dovish than they expected."


Expectations of policy easing have helped drive a near 5% gain for the STOXX 600 this month, helping the main index recoup almost all of a steep sell-off that made May the worst month in more than two years.

Signs the United States and China will return to the negotiating table over trade also bolstered sentiment, with tariff-sensitive auto and technology stocks gaining 1.5% and 1.9% respectively.

French carmaker Renault rose 1.9% after its chief executive Thierry Bollore said cutting its stake in alliance partner Nissan was not on the agenda.

Germany's DAX hit its highest level since May 3, helped by software company SAP advancing 1.7% after arch-rival Oracle forecast current-quarter profit above estimates.

German food delivery company Delivery Hero jumped 10.1%, the most on the benchmark index, after raising its full year revenue outlook by 200 million euros.

One high-profile faller was Deutsche Bank AG, which slipped 1% after a report U.S. federal authorities are investigating whether the German lender complied with laws meant to stop money laundering and other crimes. (Reporting by Amy Caren Daniel and Medha Singh in Bengaluru; Editing by Catherine Evans)