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European shares hit 6-week highs after Fed spurs rate cut hopes

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June 20 (Reuters) - European stocks rose to six-week highs in early deals on Thursday, as signs Brussels will hold off on disciplinary action over Italy's budget added to the latest signals of monetary stimulus on the way from the world's big central banks.

The Federal Reserve pointed the way to a cut in interest rates as soon as July on Wednesday, following up on a surprisingly strong warning from European Central Bank chief Mario Draghi earlier this week that more action was possible.

Euro zone and German bond yields tumbled and the pan-European STOXX 600 index rose 0.6% by 0706 GMT, with interest rate sensitive banking stocks underperforming.

Adding pressure to the banking sector, Deutsche Bank AG slipped 0.6% after a report U.S. federal authorities are investigating whether the German lender complied with laws meant to stop money laundering and other crimes.

Italy's FTSE MIB rose 0.72% and its banking index gained 0.43% after officials said the European Commission was unlikely to recommend further steps next week in disciplinary procedures over the country's rising debt.

Germany's DAX hit its highest level since May 3, helped by software company SAP advancing 1.5% after arch-rival Oracle forecast current-quarter profit above estimates. (Reporting by Amy Caren Daniel and Medha Singh in Bengaluru; editing by Patrick Graham)