By Helen Reid
LONDON (Reuters) - Reports of progress in U.S.-China trade negotiations and hopes of a new scheme to support euro zone banks drove a strong rally in European stocks, which posted their best week since November and reclaimed three-month highs.
The trade-sensitive German index jumped 1.9 percent while the STOXX 600 rallied 1.4 percent on the day and made a weekly gain of 3 percent.
Chinese state news agency Xinhua reported China and the United States had reached a consensus in principle on some key issues during trade talks in Beijing.
Combined with Chinese President Xi Jinping saying talks will continue in Washington next week, that gave the market another leg up after U.S. Treasury Secretary Stephen Mnuchin said talks had been "productive".
Mining stocks jumped 1.95 percent to a four-month high and China-sensitive autos stocks rose 2.1 percent, a big reversal from early losses after weak European car sales data.
Bank stocks were also top movers with the index climbing 2.75 percent.
Euro zone bank stocks rallied sharply after ECB board member Benoit Coeure said a new round of TLTROs -- cheap multi-year loans to banks -- is "possible".
Investors have been hoping for a new round of TLTROs to boost ailing euro zone lenders, particularly in Italy, that could face a funding cliff-edge next year when previous loans must be repaid. Italian banks rose 2.8 percent to a two-month high after the comments.
In corporate news, some strong results helped the STOXX up.
French media giant Vivendi climbed 5.6 percent after reporting strong results for its Universal Music Group arm, and confirming it would soon select financial advisors to sell a stake of up to 50 percent in UMG.
"UMG has continued to deliver strong organic revenue growth with paid streaming accelerating quarter-on-quarter throughout 2018," UBS analysts said.
Vivendi also announced its top stakeholder Vincent Bollore would further withdraw from the company's management. Bollore, another of the billionaire's companies, climbed 6.7 percent.
Telecom Italia was a top gainer, up 6.4 percent after a source said Italian state lender CDP has authorization to increase its stake in the firm to 10 percent within the next 12 months.
Eutelsat meanwhile sank 6 percent, the biggest faller on the STOXX, after its first half results. A trader said the company's CEO talked down the possibility of consolidation in the industry.
Swedish defence firm Saab climbed 6 percent after its fourth-quarter earnings beat expectations and it forecast better margins and sales in 2019.
M&A also moved some shares.
German internet portal Scout24 surged up 10.9 percent to the top of the STOXX after it welcomed a higher offer from a private equity consortium of Hellman & Friedman and Blackstone.
Citi Economic Surprise Index: Euro zone vs US - https://tmsnrt.rs/2Ebvi2l
(Reporting by Helen Reid; Editing by Catherine Evans)