European shares lifted by late surge in Deutsche Bank

* Deutsche Bank (LSE: 0H7D.L - news) closes up 6.4 pct

* STOXX 600 ends up 0.1 pct, DAX up 1 pct

* Deutsche Bank shares down nearly 50 pct in 2016

* STOXX 600 down 6 pct in 2016

By Sudip Kar-Gupta

LONDON, Sept 30 (Reuters) - European shares closed higher on Friday, lifted by a late surge in Deutsche Bank after a media report that it was close to settling with U.S. authorities over alleged misselling of mortgage-backed securities.

The pan-European STOXX 600 index ended 0.1 percent higher, as Deutsche Bank closed up 6.4 percent, rallying towards the end of the European trading session having initially sunk to record lows of below 10 euros at the start of the day.

Traders cited a report by Agence France Presse that Deutsche Bank was near a $5.4 billion settlement with U.S authorities over the mortgage-backed securities affair as contributing to the spike in the company's shares. That would be considerably less than the $14 billion demanded by the U.S. Department of Justice.

Deutsche Bank declined to comment on the media report. In spite of Friday's recovery, Deutsche Bank shares remain near record lows and are down nearly 50 percent so far in 2016.

Earlier, U.S. investment bank JP Morgan also estimated the U.S. fine could be reduced to $5.4 billion. But it said Deutsche would not have enough current reserves to pay a fine that was more than $4 billion and would have to raise more capital if so.

Morgan Stanley (Xetra: 885836 - news) estimated Deutsche Bank could reach a $6 billion settlement over the affair, and could agree on a deal before November's U.S. presidential election.

Several traders expressed relief at signs that Deutsche Bank could be near a deal with U.S. authorities.

Clairinvest fund manager Ion-Marc Valahu added he did not have concerns over Deutsche Bank's financial position, given how Deutsche Bank and other euro zone lenders have access to the European Central Bank's 'LTRO' liquidity programmes.

"They are well capitalized. They have access to the LTROs, so I'm not concerned about their liquidity, and you should not underestimate politicians' ability to strike a deal," said Valahu, who has a "long" position betting on further gains in the STOXX Europe 600 Bank index.

The Deutsche Bank rally enabled Germany's benchmark DAX index to end 1 percent higher, with the DAX also boosted by gains at chipmakers Infineon (Xetra: 623100 - news) and Dialog Semiconductor, which were lifted by merger speculation within the sector.

However, Spanish telecoms group Telefonica (LSE: 826858.L - news) fell 4 percent as the company cancelled the stock market listing of its Telxius business.

German bank Commerzbank (Xetra: CBK100 - news) also dipped 1.2 percent on uncertainty over whether it could deliver on restructuring plans, which will see it axe thousands of jobs in a bid to boost earnings.

Alessandro Balsotti, portfolio manager at JCI Capital in Milan, said the health of European banks - with Italian banks hit by concerns over bad debts - remained a cause for concern.

"The systemic risk of European banks continues to be the most important risk for all markets," he said.

The STOXX 600 index remains down by around 6 percent so far in 2016.

(Additional reporting by Danilo Masoni; Editing by Janet Lawrence)