European shares brush off German government worries; DAX reconquers key level

* STOXX up 0.5 pct, DAX above 13,000 points

* Volkswagen (IOB: 0P6N.IL - news) leads German blue-chips

* RWE (IOB: 0FUZ.IL - news) lifted by hopes of Innogy deal, less stringent policy

* Roche rallies after double trial wins

* Altice (Other OTC: ATSVF - news) rebounds after ruling out rights issue (Adds closing prices, stocks)

By Danilo Masoni and Hakan Ersen

MILAN/FRANKFURT, Nov 20 (Reuters) - European shares rose on Monday as confidence over global economic activity and a retreating euro encouraged investors to brush off worries over the collapse of coalition government talks in Germany.

Germany's DAX rose 0.5 percent, more than 60 points above the 13,000 points benchmark after reversing early morning losses that sent the index down as much as 0.5 percent.

The broader pan-European STOXX 600 index added 0.7 percent.

Chancellor Angela Merkel said on Monday her efforts to form a three-way coalition had failed, pushing Germany, Europe's largest economy, closer to a possible new election but markets were in no mood to let politics spoil their day.

"We do not expect that there will be a veritable political crisis or a sustainable change of course in German politics," said economist Jan Bottermann of Essen National Bank.

"The markets are driven by the good international environment, which will continue to provide the German economy with strong growth", he said, while other analysts pointed out that the 0.4 percent fall of the euro against the dollar also provided a boost to European stocks.

Volkswagen was the best performer among German blue-chips, up 4.2 percent after it raised its mid-term outlook, sustaining investor hopes that the carmaker can further its recovery despite shouldering billions in costs for its electric-car offensive.

Shares (Berlin: DI6.BE - news) in ProSiebenSat.1 followed closely with a 3.2 percent rise on news that its chief executive would quit after a series of missteps, rekindling hopes the German broadcaster could become an acquisition target.

German utility RWE was up 2.8 percent on renewed investor hopes of a deal for its Innogy unit and on expectations of a less stringent climate policy following the failure of coalition talks that had involved the environmentalist Greens.

Elsewhere, Roche rallied 5.9 percent, in the best performance of the STOXX 600, after the Swiss-based drugmaker announced two trial wins.

The firm said its immunotherapy Tecentriq, mixed with other drugs, made advances against lung cancer, while data suggested its haemophilia agent Hemlibra could be used by more patients.

"Roche has delivered a best-case scenario ... given degrees of market scepticism around both these studies," Jefferies analysts said in a note.

Altice posted a 5.2 percent rebound after the telecoms and cable company said it was not preparing to raise cash through any equity issue, adding it had no margin loans problems and was working on an asset sale programme to cut its debt.

Among top fallers were Elior (Paris: FR0013204435 - news) , down 6.9 percent, as brokers slashed their price targets following a disappointing update on Friday from Europe's third-largest catering group.

So far in November, the STOXX 600 is down 2.2 percent as investors have recently been locking in profits. However, it is still up 6.9 percent since the beginning of the year. (Additional reporting by Julien Ponthus in London, editing by Gareth Jones)