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UPDATE 2-European shares end up over 1% on China COVID relief, positive forecasts

·2 min read

* Shanghai reports three days of no new COVID-19 cases

* ENGIE, Daimler Truck jump after earnings

* Equinor edges lower (Adds comments, details, updates prices throughout)

By Susan Mathew and Shreyashi Sanyal

May 17 (Reuters) - European shares ended higher on Tuesday, on hopes that demand in China could be sustained as authorities looked to relax COVID-19 restrictions as investors also welcomed upbeat earnings forecasts.

The STOXX 600 index rose 1.2%, with a 3.2% jump in the mining sector leading gains. Banks and industrial stocks were also among sectors providing the biggest support.

Risk appetite was boosted after Shanghai achieved the long-awaited milestone of three straight days with no new COVID-19 cases outside quarantine zones, which could lead to the beginning of the lifting of restrictions.

"The markets (have) been obsessed with what's going on in China and essentially that is the singular major catalyst," said Keith Temperton, sales trader at Forte Securities.

Worries about growth in China, a higher interest rate environment squeezing economic momentum, and the fallout from the Russia-Ukraine war have dented markets this year, with the STOXX 600 near one-year lows in March.

Markets have also seen huge volatility. The region-wide benchmark hit two-month lows last week, but has since rallied almost 5% from that level. For the year, it is down around 10%.

Data from the United States showed a solid rise in retail sales in April, adding to the day's respite from the global growth concerns.

"Never bet against the U.S. consumer has always been a good adage," said Paul Ashworth, chief North America economist at Capital Economics.

"Despite the surge in prices weighing on their purchasing power, the U.S. consumer now appears to be single-handedly keeping the global economy afloat again."

Among individual shares, French power group ENGIE firmed 5.3% after it posted higher first-quarter profits and raised its 2022 outlook while saying it was in talks with Russia's Gazprom regarding changing the payment scheme for gas supplies.

Daimler Truck Holding and Spain's Caixabank rallied 6.5 and 5.2% respectively, on upbeat forecasts.

Power generation company ContourGlobal soared 32.9% after U.S. private-equity firm KKR agreed to buy the firm for 1.75 billion pounds ($2.16 billion).

Equinor SA edged 0.2% lower after the Norwegian oil producer told Reuters that it took the first steps along with Exxon Mobil Corp to expand an $8 billion oil development off Brazil's coast. (Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru; Editing by Uttaresh.V and Alison Williams)