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European shares claw back lost ground on Huawei relief

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May 21 (Reuters) - European shares edged higher on Tuesday after the United States temporarily eased restrictions on China's Huawei, easing trade tensions and lifting tariff-sensitive tech and auto stocks, while the banking sector also gained.

The pan-European STOXX 600 index was up 0.4% by 0745 GMT, with the trade-sensitive DAX outperforming after the U.S. Commerce Department said it would allow Huawei Technologies to purchase American-made goods.

The news came as a major relief to markets and lifted European chipmakers, which had tumbled after reports suggested they may pause shipments to the Chinese telecoms tech giant. The tech sector rose over 1% after losing almost 3% on Monday.

Auto stocks were around 0.4 percent higher, with Daimler giving an additional boost after German newspaper Handelsblatt reported the company was looking to cut administration costs by 20%.

The banking index, which closed at a more-than three-month low in the previous session, climbed 0.7%

As earnings season nears its end, fewer companies are reporting. Italy's biggest phone group Telecom Italia led gainers on the STOXX 600 after posting first-quarter earnings in-line with expectations and confirming its guidance for the next three years.

Swiss hearing aid maker Sonova reported an increase in full-year sales, sending its shares up 4%.

Norsk Hydro rose 5.4% after Brazil gave the go ahead for the company's Alunorte alumina plant to reopen.

Struggling Spanish retailer DIA jumped 5% after reaching an eleventh-hour agreement to secure financing, staving off the imminent risk of having to start insolvency proceedings.

Defensive stocks - including real estate, utilities and telecoms - underperformed.

But investors remained cautious as the sudden about-turn in China-U.S. talks over the last two weeks shattered confidence in a speedy truce to the trade war that has roiled financial markets for a year.

European equities have outperformed Wall Street since the tariff war re-intensified on May 9, with the STOXX 600 rising 0.4% but the U.S. benchmark S&P 500 index losing almost 1% during the same period. (Reporting by Agamoni Ghosh and Amy Caren Daniel; Editing by Kirsten Donovan)