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UPDATE 2-Best session in 11 weeks for European stocks as banks surge

* Banks jump on rate expectations

* Euro zone business growth slowed in Sept – PMI

* Infineon up on upbeat forecast (Updates to close)

By Sruthi Shankar and Susan Mathew

Oct 5 (Reuters) – A 3.5% jump in European banks and a rally in beaten down technology companies pushed an index of European stocks up over 1% on Tuesday, also helped by positive U.S. data bolstering Wall Street.

The European tech sector jumped 2.2%, breaking a seven-session losing run over which it fell 11.7%. U.S. peers also rallied as investors moved into growth names.

Chipmaker Infineon’s 4.8% climb led gains after it confirmed its 2021 revenue and said it expects results to rise further next year.

The pan-European STOXX 600 index ended up 1.2% with all major sectors in the black, helping it log its best session since July 21.

Bank stocks hit an over 1-1/2 year high. JPMorgan said it is still “overweight” on European banks citing upside to capital return and rates outlook.

Spain’s BBVA, Italy’s Intesa Sanpaolo and Finland’s Nordea Bank were JPM’s top picks. Shares in Italy’s Unicredit jumped 4.3% after the bank confirmed its third-quarter forecast to analysts.

“Rate-sensitive banking stocks are enjoying a boost as investors begin to seriously price in rate rises,” said Danni Hewson, financial analyst at AJ Bell.

“But there are big questions about how the economy is really bouncing back, and cost pressures are taking their toll on businesses and the consumer,” Hewson said.

Business growth in the euro zone slowed in September as supply issues constrained activity, while elevated inflationary pressures dented demand, IHS Markit’s survey showed.

“The PMIs are consistent with the euro-zone’s economic recovery losing some momentum… The surveys also show that price pressures are spreading to the services sector, even in parts of the periphery,” said Jessica Hinds, Europe economist at Capital Economics.

Investors are now awaiting U.S. jobs data on Friday for signs on the tapering timeline of Federal Reserve asset purchases. Data on Tuesday showed U.S. services industry activity nudged up in September.

British baker and fast-food chain Greggs climbed 11.1% to top the STOXX 600 after it raised its full-year profit outlook despite staffing and supply chain issues.

Third-quarter earnings for companies listed on the STOXX 600 are expected to increase 45.6% from a year ago, according to Refinitiv data.

German leasing company Grenke tumbled 6.7% after it cut its full-year forecast range, while audio solutions provider GN Store Nord slumped 7% after a forecast cut at the company’s Hearing unit due to delays in product launches.

Dutch tech investor Prosus rose 2.6% after it got regulatory approval to increase its stake in German food delivery company Delivery Hero. (Reporting by Sruthi Shankar and Anisha Sircar in Bengaluru; Editing by Sriraj Kalluvila, Ramakrishnan M. and Bill Berkrot)