UPDATE 2-Defensive buying drives European stocks higher; FTSE outperforms

* STOXX 600 closes at highest since Sept 2
* London shares outperform as pound takes a hit
* Euro zone manufacturing contracted for seventh month

(Updates to close)
By Sruthi Shankar
Sept 2 (Reuters) - European stocks closed higher in thin
trading on Monday, with investors favouring defensive sectors as
the United States and China imposed more tariffs, while a slide
in the pound helped Britain's FTSE 100 outperform.
The pan-European STOXX 600 .STOXX closed up 0.3%, starting
September on a positive note after global trade disputes and
recession worries drove the benchmark down 1.6% in August.
After a tumultuous month, equity investors largely shrugged
off the latest escalation in the trade spat as Washington began
imposing 15% tariffs on a variety of Chinese goods on Sunday and
Beijing reciprocated with new duties on U.S. crude oil.
London shares .FTSE jumped 1%, outpacing their European
peers, as the internationally focused stocks got a boost from a
a slump in sterling on fresh Brexit worries. GBP/
On the main STOXX index, defensive sectors such as food and
beverage, healthcare and utilities - which tend to be favoured
during times of economic uncertainty - led the gainers.
In the latest evidence of trade war taking a toll on global
growth, a series of business surveys from China to Europe showed
factory activity was largely in decline in August. An ongoing decline in export-reliant Germany meant factory
activity in the euro zone contracted for a seventh month in
August, bolstering expectations the European Central Bank will
ease monetary policy next week. "The data hasn't changed views much. You're left with the
fact that a lot of negatives about the trade war has been
discounted in the recent days," Rabobank's Philip Marey said.
"There are some hopes that will be talks between the two
parties and the U.S. holiday is having an impact as well.
Investors are waiting for a direction from U.S. markets."
U.S. President Donald Trump said both sides will still meet
for talks later this month. Trade reliant sectors like technology stocks and autos
lagged, and commodity-linked stocks turned to losses after
initially leading gains in the region on a surge in iron ore
prices. IRONORE/
Trade-sensitive German shares .GDAXI ended slightly
higher, led by gains in exchange operator Deutsche Boerse
DB1Gn.DE , while a price target hike by Goldman Sachs on
renewable energy company RWE RWEG.DE drove its shares up 3.7%.
Easing political worries helped Italy's FTSE MIB .FTMIB
gain 0.6% after Prime Minister Giuseppe Conte said on Sunday he
expected to settle talks over a new government by Wednesday, as
the 5-Star Movement and Democratic Party (PD) worked out cabinet
posts and a common agenda. In corporate news, German real estate firm Aroundtown SA
AT1.DE turned 3.2% lower after initially hitting a record
high. Rival TLG Immobilien TLGG.DE said it was evaluating a
potential merger with Aroundtown buying a nearly 10% stake in
the company for about 1.02 billion euros. TLG's shares also fell
3.5% British pharma company AstraZeneca Plc AZN.L jumped 2.9%
to an all-time high on positive late-stage study results and a
target price hike by Deutsche Bank.