UPDATE 2-European stocks climb as deal talk outweighs trade fears

* Thyssenkrupp up as Kone considers bid for elevator unit
-sources
* Nestle clocks record closing high on talks over skin
health sale
* Norsk Hydro up 4.9% after court lifts one production
embargo
* Ubisoft slides after results miss

(Updates to close, recasts, adds market economist's quote)
By Medha Singh and Aaron Saldanha
May 16 (Reuters) - European shares reversed course to end in
positive territory on Thursday, with deal-making news in Germany
helping to prop up the pan-European benchmark as it overcame
fears of an escalation in the U.S.-China trade war.
The STOXX 600 index .STOXX rose 1.3% to a 10-day closing
peak after shrugging off early weakness triggered by the White
House imposing severe sanctions on Chinese telecoms giant Huawei
HWT.UL late on Wednesday.
Rabobank market economist Stefan Koopman said that
U.S.-China tensions have already been priced in and markets are
more focused on the trade situation between Europe and the
United States.
The latest Huawei sanctions helped rivals Ericsson
ERICb.ST and Nokia NOKIA.HE to advance by 2.1% and 4.1%
respectively. Paris-traded stocks .FCHI rose 1.4%, matched by the Milan
benchmark .FTMIB while London-listed equities firmed by 0.8%.
.L
Germany's DAX .GDAXI jumped by 1.7% for a third
consecutive daily gain, though tariff-sensitive automotive
shares did not contribute. The gains in Frankfurt were mainly
driven by news of corporate deals.
Thyssenkrupp TKAG.DE soared with a 9.4% advance after
Reuters reported that Finland's Kone KNEBV.HE might bid for
the German group's elevator division. Kone shares added 5%.
Lighting group Osram Licht OSRn.DE gained 5.3% to 28.80
euros after it said that talks with Bain and Carlyle CG.O were
continuing. German magazine Boerse Online said the private
equity groups could bid with an offer price of 35 euros per
share.
Basic materials stocks .SXPP rose by 1.6%, with Norsk
Hydro NHY.OL up 4.9% after a Brazilian federal court lifted
one of two production embargoes on a plant owned by the
Norwegian metals producer. Nestle SA NESN.S was up 1.8% at a record closing high. The
Swiss group said it entered exclusive talks to sell its skin
health business to a consortium led by private equity firm EQT
Partners in a deal worth 10.2 billion Swiss francs ($10.1
billion). If it goes through, the deal will be the second-largest
private equity-backed deal in Europe since the financial crisis,
Refinitiv data shows, and comes as the food group shifts its
portfolio in response to changing consumer demands.
Automakers and their suppliers .SXAP fared less well,
shedding 0.5% after the previous session's 2% gain.
French video games group Ubisoft Entertainment UBIP.PA ,
meanwhile, slumped by 12.7% after fourth-quarter results missed
market forecasts. = 1.0097 Swiss francs)