UPDATE 2-Telecoms, banks lift European shares in post-Thanksgiving rally

* Italian stocks, banks surge

* Speculation about more telecom deals

* Oil rebound lifts energy sector

* Eurofins Scientific gains on extended growth targets (Adds telecom sector, quote)

By Helen Reid and Julien Ponthus

LONDON, Nov 26 (Reuters) - European shares closed higher on Monday after new-found optimism on Italy's budget tug-of-war with Brussels lifted shares in Milan while speculation about further mergers and acquisitions in telecoms boosted stocks in the sector.

A strong open on Wall Street amid expectations of blockbuster sales on the largest online shopping day of the year combined with a rebound in oil prices also helped indexes make gains across the board.

The pan-European STOXX 600 climbed 1.2 percent and Italy's FTSE MIB .FTMIB led the way with a 2.8 percent jump.

Italy's banks index .FTIT8300 jumped 4.8 percent, its strongest day since June, while the sector in the euro zone gained 2.9 percent.

A drop in Italian bond yields to two-month lows, due to hopes the government will agree to curb spending to avoid a clash with Brussels, drove the relief rally in lenders that have large sovereign bond portfolios. potentially move from a negative spiral to a more positive spiral where you end up with less pressure on the banks, more ability to lend and that will underpin growth in a better fashion," said Pierre Bose, head of European strategy at Credit Suisse (SIX: CSGN ) Wealth Management.

UBI Banca UBI.MI and Unicredit CRDI.MI were among top Italian gainers up 6.4 percent and 5.5 percent respectively.

The Italian banks' gains were amplified by short positions investors have been building up on the stocks in recent weeks.

But investors warned the signs of a compromise from the Italian government were not a silver bullet.

"There's a little bit more conciliatory talk, but the fine print remains key in the sense that cutting it (the budget deficit) by 0.3 or 0.4 (percentage points) will help potentially prevent an excessive deficit procedure but the broader vulnerability to weakness in growth in Italy remains," said Bose.

Shares in European telecoms rallied 3.3 percent after a report saying the European Commission was set to clear a merger in the Netherlands fueled optimism about deal-making.

People familiar with the matter told Reuters that Deutsche Telekom DTEGn.DE was likely to win unconditional EU antitrust approval for its bid to buy Swedish peer Tele2's TEL2b.ST Dutch unit.

The report sent shares in Tele2 up 9 percent, while Dutch market leader KPN KPN.AS surged 5.8 percent.

A rebound in oil prices after the previous session's steep losses pushed energy shares and oil majors higher with the overall sector .SXEP posting a 2.2 percent rise.

In other sectors, shares in France's Saint-Gobain SGOB.PA jumped 4 percent after the construction materials group launched a new business strategy and management structure which it said would improve margins and result in more cost savings. Scientific EUFI.PA rose 7.9 percent after the laboratory testing firm reduced its financing costs and extended its organic growth objectives beyond 2020, and Berenberg raised the stock to "buy" from "hold". the small-cap space, Faroe Petroleum FPM.L shares surged 26.9 percent after Norway's DNO DNO.OL offered to buy it for 152 pence per share in cash - a 20.8 percent premium to its Friday closing price - valuing it at 607.9 million pounds ($779.81 million). Italy short positions

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