By Susan Mathew
(Reuters) - Euro zone banks enjoyed their best day in two months on Thursday after comments by new ECB chief Christine Lagarde, and European shares were propelled further by U.S.-China trade developments.
The pan-European STOXX 600 index <.STOXX> closed up 0.3% as euro zone banks <.SX7E> rose 2.8%, with investors taking comfort from Lagarde saying she was aware of the side effects of the European Central Bank's unconventional monetary policy.
The ECB kept its sub-zero interest rates steady and, at her first meeting as president of the ECB, Lagarde said she was neither a policy hawk nor a dove but an owl who will use her wisdom to heal a recent rift in the Governing Council.
She also said the bank expects in January to begin a strategic review of how it does business.
"Lagarde seems poised to help take the eurozone out of negative rates, with her first move possibly changing her risk assessment in the near future," said Edward Moya, a senior market analyst at OANDA who described her as "slightly hawkish".
Bank-heavy indexes in Italy <.FTMIB> and Spain <.IBEX> rose 1% and 0.8% respectively, as overnight the U.S. Federal Reserve also held an accommodative stance.
Trade-sensitive German shares <.GDAXI> rallied 0.6% after a report saying Washington had offered to cancel tariffs set to take effect on Chinese goods on Dec. 15 and a tweet from U.S. President Donald Trump suggesting a trade deal with China was very close.
Uncertainty around a trade deal as new tariffs loomed had dampened sentiment among investors this week.
These developments helped European shares stay firmly in the black before exit polls from an election in Britain which may determine whether Britain exits the European Union soon after 3-1/2-years of uncertainty.
London's internationally focused FTSE 100 index <.FTSE> and an index of more domestically focused firms <.FTMC> both firmed around 0.7%.
Opinion polls have pointed to the ruling Conservatives, led by Prime Minister Boris Johnson, gaining a parliamentary majority that enables his stalled Brexit deal to be passed, but the latest polls have shown the lead shrinking. Exit polls are due around 2200 GMT.
Dublin's ISEQ <.ISEQ>, typically sensitive to Brexit news, rose 0.6%.
In corporate news, Anheuser-Busch InBev's
(Reporting by Medha Singh in Bengaluru; Editing by Arun Koyyur and Timothy Heritage)