By Susan Mathew

(Reuters) -European shares jumped 1.5% on Tuesday, on hopes that demand in China could be sustained as authorities looked to relax COVID-19 restrictions that had started to squeeze the world’s second-largest economy.

Travel and commodity-linked stocks rose 2.2% and 2.3%, respectively, while banks and industrial stocks were among sectors providing the biggest boost to the main index.

The pan-European STOXX 600 index had ended flat on Monday after data showed growth slowing in China.

However, risk appetite got a boost on Tuesday after Shanghai achieved the long-awaited milestone of three straight days with no new COVID-19 cases outside quarantine zones, which could lead to the beginning of the lifting of restrictions.

“The markets (have) been obsessed with what’s going on in China and essentially that is the singular major catalyst,” said Keith Temperton, sales trader at Forte Securities, adding that supply chain challenges and developments around lockdowns in China had affected markets.

Worries about growth in China, a higher interest rate environment squeezing economic momentum, and the fallout from the Russia-Ukraine war have dented markets this year, with the STOXX 600 hitting near one-year lows in March.

Markets have also witnessed volatility. The region-wise benchmark hit two-month lows last week, but has since rallied almost 5% from that level. For the year, it is down around 10%.

“We’ve had a pretty brutal six weeks. So, people jump on any excuse to buy… and we’re in pretty thin volumes as well, so it doesn’t take a lot of buying to move the markets,” Temperton said.

Among individual shares, French power group ENGIE firmed 6% after it posted higher first-quarter profits and raised its 2022 outlook while saying it was in talks with Russia’s Gazprom regarding changing the payment scheme for gas supplies.

Daimler Truck Holding and Spain’s Caixabank rallied more than 4% each on upbeat forecasts.

Limiting gains for Europe’s telecom index and London’s FTSE 100 index, however, Vodafone fell 2.4% on forecasting earnings growth for the current year below market expectations. [.L]

Power generation company ContourGlobal soared 33.7% after U.S. private-equity firm KKR agreed to buy the firm for 1.75 billion pounds ($2.16 billion).

M&C Saatchi rallied 9.2% after it received a fresh takeover offer from the acquisition vehicle of its top shareholder Vin Murria, valuing the British advertising group at 253.6 million pounds ($314 million).

(Reporting by Susan Mathew in Bengaluru; editing by Uttaresh.V)