By Susan Mathew
(Reuters) - A breakthrough in U.S.-China trade talks and hopes of an orderly Brexit after a landslide election victory for UK Prime Minister Boris Johnson lifted Europe's benchmark share index to within striking distance of an all-time high on Friday.
China and the United States have agreed on the text of a "phase one" trade deal, Beijing said on Friday. China said it had agreed to step up purchases of U.S. agricultural products, while U.S. President Donald Trump said Washington would suspend tariffs on Chinese imports scheduled for Sunday.
The pan-European STOXX 600 closed up <.STOXX> 1.1%, buoyed by the major step forward in resolving a trade war that has hit global supply chains and roiled markets for over 16 months.
The UK-focused FTSE mid-cap index <.FTMC> jumped 3.4%, after touching a record high earlier in the session, as the Conservative Party's election win raised hopes Johnson will deliver Brexit within weeks, ending 3-1/2 years of uncertainty and fears of a disorderly break with the EU.
"Two of the biggest stumbling blocks for European markets have been removed on the same day," said Peter Dixon, chief UK economist at Commerzbank.
The benchmark European index closed just shy of a record high hit in 2015. It is also on track to end the year more than 20% higher, its biggest annual gain in a decade.
But, stocks pared some early gains as investors took in the trade news with caution, as the deal is yet to be signed.
Export-reliant German stocks <.GDAXI> closed up 0.5% well-off session highs, held back also by a 3.7% slump in Henkel
London's blue-chip FTSE 100 <.FTSE> advanced 1.1% as gains in banks and consumer goods helped the export-heavy index shrug off the impact of a surge in sterling, which typically weakens sentiment towards internationally focused companies.
"Completing the Brexit process remains a Herculean task that will take considerably longer than the eleven months currently planned, but in the near-term we are likely to see UK equities move higher alongside sterling," said Karen Ward, chief market strategist, EMEA, at J.P. Morgan Asset Management.
The European travel and leisure index <.SXTP> added 3.6%, boosted by rallies in Brexit-sensitive airline stocks such as easyJet
Dublin's ISEQ <.ISEQ>, also considered a barometer of Brexit sentiment, jumped to a 12-year high.
Italian shares <.FTMIB>, however, closed 0.3% lower, as the banking index <.FTIT8300> dropped 1.4% to log its worst day in a month. Prime Minister Giuseppe Conte said there was no need for state to help any Italian bank at present.
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(Reporting by Medha Singh in Bengaluru; Editing by Patrick Graham and Mark Potter)