UPDATE 2-European stocks hover near record high with banks in lead


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* Credit Suisse continues slide

* German DAX races to all-time high

* STOXX 600 less than 1% away from record peak (Adds comments, updates prices throughout)

By Sruthi Shankar and Shreyashi Sanyal

March 30 (Reuters) – European shares ended close to record highs on Tuesday on hopes of a vaccine-driven economic recovery, while investors looked past the fallout of a U.S. hedge fund default that hit banking stocks a day earlier.

The pan-European STOXX 600 index gained 0.7%, trading less than a percent below its pre-pandemic peak.

Bank stocks jumped 2.7%, rebounding after a 1% drop on Monday, as U.S. and European government bond yields rose on hopes of stronger economic growth and inflation ahead.

Swiss lender Credit Suisse fell 3.1%, following its near 14% slide in the previous session as it warned of “highly significant and material” losses after the fund, named by sources as Archegos Capital, defaulted on margin calls.

“Though Archegos uncertainties are still hanging over the markets, European investors felt settled enough to push the region’s indices higher,” Connor Campbell, a financial analyst at SpreadEx, said in a note.

The German DAX rose 1.3% to scale a record high, boosted by automakers and a 1.6% rise in Deutsche Bank .

“If all goes well in the next 48 hours, it (the DAX) could close out March above 15,000,” said Campbell.

The benchmark STOXX 600 is on course to end the first quarter with a near 8% gain – its fourth straight quarterly rise – as global growth optimism overshadowed sluggish vaccination drives in the euro zone and new coronavirus-related lockdowns.

Economically sensitive cyclical sectors such as autos, banks and travel and leisure have been the top performers this quarter as investors snapped up the cheap stocks on hopes that the reopening of economies will spur growth in the sectors.

“The light at the end of the tunnel is getting brighter and equities remain the top choice for investors despite the recent turbulence and inflation fears,” said Milan Cutkovic, market analyst at Axi.

Data showed French consumer confidence rose unexpectedly in March despite new restrictions to combat coronavirus contagion in large areas of the country and the prospect of more curbs on the way.

Italian luxury puffer jacket maker Moncler rose 2.9% and Swiss watch group Swatch gained 3.3% after Deutsche Bank upgraded their stocks to “buy”.

Defensive sectors such as utilities and healthcare fell, while rising yields weighed on highly valued technology stocks. (Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Editing by Shailesh Kuber, Subhranshu Sahu and Mark Heinrich)