European shares rally after ECB pushes back rate hike bets

* STOXX 600 jump 1.4 pct

* ECB to end bond buys, keep rates steady through next summer

* Rolls Royce (LSE: RR.L - news) eyes savings, shares up (Updates prices, adds quotes, details)

By Danilo Masoni and Helen Reid

MILAN/LONDON, June 14 (Reuters) - European shares jumped on Thursday after the European Central Bank said interest rates would stay at record lows at least through the summer of 2019 as it announced an end to its massive stimulus plan.

Stock benchmarks across Europe enjoyed their best day in 2-1/2 months as they benefited both from a weaker euro and the surprise extension of lower interest rates.

The pan-European STOXX 600 and the euro zone STOXX jumped 1.4 and 1.3 percent, while the exporter-heavy German index gained 1.7 percent as the euro fell to a session low following the ECB's statement.

Along with France's CAC 40, they had their strongest gains since April 5.

Edmund Shing, head of equity derivatives at BNP Paribas (LSE: 0HB5.L - news) , said low rates for longer was a boon for equities as it ensured liquidity remained strong.

"One of the key drivers for risk assets has been and continues to be liquidity, beyond all other things. The longer they delay rate hikes the longer liquidity stays decent," he said.

"The hawks had been guiding for a June hike before the meeting and given the clear guidance the ECB gave today on interest rates, it had to be priced out," said AFS Group analyst Arne Petimezas.

"It doesn't seem like we're at the stage where the hawks are on top of things," he added.

Interest-rate sensitive sectors such as autos and utilities surged, while the euro zone's banking stocks, which suffer from low interest rates, fell 0.2 percent, among the only stocks in negative territory.

Germany's Commerzbank (Xetra: CBK100 - news) , Spain's Bankia (Amsterdam: QU8.AS - news) , and Italy's Unicredit (EUREX: DE000A163206.EX - news) were the biggest fallers, down 1.2 to 2 percent.

"It's a disappointment" for banks, said BNP Paribas' Shing, adding that the ECB's negative deposit rate costs banks money.

"The faster the deposit rate gets back to 0, the better for banks' profitability."

AUTOS SECTOR

If the ECB succeeds in supporting the economy and productivity, however, this could have positive knock-on effects for banks through boosting demand for financing and alleviating the burden of non-performing loans, he added.

The autos sector rose 1.8 percent, its strongest gains in 2 1/2 months, also boosted by a weak euro.

Rolls-Royce gained 6.5 percent after saying it would save 400 million pounds ($535 million) a year by cutting 4,600 jobs in its latest attempt to simplify the business and generate more cash.

"After spending around four and half years in purdah, an incremental 400 million pounds of FCF (free cash flow) would allow Rolls-Royce to take a significant step toward meeting its financial targets," Jefferies analysts said.

"That should then mean Rolls-Royce can make an adequate annual return to shareholders through the dividend."

Danish hearing equipment maker GN Store Nord (LSE: 0K9P.L - news) was the top gainer on the STOXX, up 12.2 percent after it upped its 2018 sales and profit forecasts for its headset business.

Shares (Berlin: DI6.BE - news) in heavyweight drugmaker GSK rose 2.3 percent. Investors welcomed news its two-drug treatment for HIV met its main goal in late stage studies - a boost after regulators warned of possible birth defects from one of the two drugs.

On the DAX, Volkswagen (IOB: 0P6N.IL - news) rose 2.2 percent. It fell in early trading after the carmaker was fined one billion euros over diesel emissions cheating. ($1 = 0.7482 pounds) (Reporting by Danilo Masoni and Helen Reid; Editing by Alison Williams)