UPDATE 2-European stocks rally as banking worries fade

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H&M posts surprise profit in Dec-Feb

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Vestas wins order in Brazil

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Spain March inflation falls more than expected

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German inflation eases but less than expected in March

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STOXX 600 rises 1.0%, banks add 1.5%

(Updates prices, details; adds comment)

By Sruthi Shankar, Shubham Batra and Bansari Mayur Kamdar

March 30 (Reuters) - European stocks rose to near three-week highs on Thursday, lifted by upbeat results from retail giant H&M and as fading concerns about the global banking sector fuelled a Wall Street rally.

The pan-European STOXX 600 index rose 1.1%, hitting it strongest level since March 10, tracking the recovery in global markets.

"It's a combination of easing banking fears and expectation that we are very close to peak rates which is lifting indices," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

"With contagion appearing to be contained for now, it's providing relief for real estate stocks amid hopes that interest rate hikes are nearly at an end."

Europe's real estate sector jumped 3.7%, as immediate concerns about prospects for the highly leveraged sector eased after a heavy drop in March dragged it close to 10-year lows hit last year.

Banking stocks rose 1.5% to a one-week high, as investors took heart from the sale of failed Silicon Valley Bank's assets and takeover of embattled Swiss lender Credit Suisse.

Sentiment improved as data showed Spain's consumer price inflation slowed to 3.3% in March, its weakest annual rate since August 2021 and down from 6.0% in February.

However, while German inflation eased significantly in March on the back of lower energy prices it still exceeded forecasts, pressuring the European Central Bank to further tighten monetary policy.

"Core inflation - as evidenced from the regional prints we got today - is rising, and this will be concerning for the ECB," said Stuart Cole, head macro economist at Equiti Capital.

"The 'hawks' on the Governing Council will argue that underlying price growth demands a robust monetary response; the 'doves' will claim that it is the overall headline measure that is being targeted and which is calling for a more cautious approach."

H&M climbed 16.3% to lead gains in the STOXX 600 after the world's second-biggest fashion retailer reported a surprise operating profit for the December-February period.

The wider retail index rallied 3.7%.

Danish wind turbine maker Vestas climbed 5.2% after it won an order in Brazil.

Dutch health technology firm Phillips rose 5.9% after its CEO Roy Jakobs told Dutch financial daily FD the company expected to reach settlements this year related to its global recall of respiratory devices.

(Reporting by Sruthi Shankar, Shubham Batra and Bansari Mayur Kamdar in Bengaluru; Editing by Subhranshu Sahu and Richard Chang)