Updates to markets close

By Twesha Dikshit and Avinash P

May 6 (Reuters) - Europe's STOXX 600 jumped over 2% on Wednesday in a broad-based rally as reports of a possible peace deal between Washington and Tehran boosted risk appetite and sent oil prices sharply lower, while upbeat company earnings added to the optimism.

The pan-European STOXX 600 .STOXX closed up 2.2% at 623.25 points, to its strongest level since April 17.

Major regional bourses mirrored the rally. France's CAC 40 .FCHI led the pack with a 2.9% jump while Italy's benchmark .FTMIB gained 2.4%, hovering near its highest level since 2000.

Iran said it was reviewing a new U.S. proposal, following reports that the two parties were closing in on a one-page memorandum to end the war in the Gulf.

Crude slipped nearly 7% with energy .SXEP the only major STOXX sector trading down 2.5%. Lower oil prices helped the oil price sensitive travel sector .SXTP advance 5.8%, leading sector-wise gains on the index.

"Signs of progress in the deal is in some ways more positive for Europe than it is for the US, just because it's a sensitive region", said Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management.

"Once this Iran issue has passed, then the underlying picture looks really strong for corporate earnings", Ganesh added.

Easing crude prices could temper concerns of energy price driven inflation, a crucial factor that hangs as a major drag on European equities which are still below their pre-war levels, while the S&P 500 has hit multiple fresh peaks ever since the outset of the Iran war.

Money markets are currently pricing in a 67.6% chance that the European Central Bank hikes rate at its June meeting, down from a nearly 85% chance on Tuesday, according to LSEG data.

Banks .SX7P and industrials .SXNP were up 3.8% and 3.2%, respectively, and the biggest boosts on the European benchmark on Wednesday.

Defence shares .SXPARO added 4.7%. Italy's Leonardo LDOF.MI gained 5% after reporting higher first-quarter earnings, while Norway's Kongsberg KOG.OL also jumped 5% after its order intake more than doubled for the quarter.

Demant DEMANT.CO surged 13.3% and marked its biggest one-day gain since October 2008 after the Danish hearing aids maker beat quarterly sales growth estimates.

Novo Nordisk NOVOb.CO gained 2.5% after the Wegovy-maker raised its full-year outlook and beat first-quarter profit estimates.

BMW BMWG.DE rose 5.4% after the German carmaker maintained its full-year outlook despite posting a steep drop in its quarterly pretax profit. The automobile index .SXAP added 4.2%.

Diageo DGE.L was up 6.4% after the world's top spirits maker posted a surprise growth in quarterly organic sales.

On the economic data front, eurozone services activity contracted for the first time in almost a year in April, hit by weakening demand amid the Middle East war.