European equities set three-week high on stronger energy stocks

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* STOXX Europe 600 index up 0.3 pct

* Energy stocks track firmer oil prices

* British bank RBS (LSE: RBS.L - news) slumps after failing stress test

By Atul Prakash

LONDON, Nov 30 (Reuters) - European shares climbed to a three-week high on Wednesday, staying on track to end the month in positive territory, with energy stocks racing higher on expectations of a deal to cut crude oil production to tackle oversupply.

The European oil and gas index rose 2 percent as oil prices surged more than 5 percent after an Iraqi delegate said that some form of deal would be reached at a Vienna meeting of members of the Organization of the Petroleum Exporting Countries (OPEC) to agree terms of a proposed production cut.

Energy companies helped the pan-European STOXX 600 to gain 0.3 percent by 0902 GMT. It has risen by about 1 percent in November after falling in the previous two months.

However, shares in state-backed British bank RBS fell 4.5 percent after it failed the Bank of England's stress test of seven British lenders and was told to boost its capital buffers.

"RBS is still the weak link in the UK banking chain, almost a decade after the financial crisis came close to wiping the bank out," said Hargreaves Lansdown (LSE: HL.L - news) senior analyst Laith Khalaf. "... Unlike most of its peers, RBS doesn't have the luxury of a dividend it can cut to support its capital position."

December is set to be an uncharacteristically busy month for markets, with a referendum on constitutional reform in Italy on Sunday, followed by a UK Supreme Court ruling on whether the government can quit the European Union without an act of Parliament.

The European banking index was broadly flat. It is up nearly 3 percent this month after advancing more than 8 percent in October but remains down by about 14 percent this year.

Italian banks surrendered early gains and were last down 0.3 percent, with investors staying cautious ahead of Sunday's referendum, which has the potential to unseat Prime Minister Matteo Renzi.

Bets on falls in Italian stocks and demand for insurance against sovereign default have both picked up markedly this year on growing investor concern ahead of the referendum, data company HIS Markit said.

However, Jefferies is sticking with a contrarian bullish call on Italian stocks, echoing views from some other fund managers who believe that the expected failure of Renzi's constitutional referendum will offer buying opportunities as others flee.

The broader European equities market was also underpinned by some M&A news.

Linde (IOB: 0H3X.IL - news) shares advanced 7 percent after the German industrial gases group received a fresh approach from U.S. rival Praxair (NYSE: PX - news) for a merger of equals.

Elsewhere, British packaging company RPC Group (LSE: RPC.L - news) hit a record high and was last up 9.4 percent, the biggest STOXX 600 gainer, after reporting a 53 percent rise in first-half revenue.

(Editing by David Goodman)