* STOXX 600 index up 0.4 pct
* Eurozone banks hit highest level in more than one year
* Oil stocks recover losses
* BT jumps after Openreach deal (Recasts, adds detail and quotes, updates prices)
By Kit Rees
LONDON, March 10 (Reuters) - European shares rose on Friday, with gains underpinned by a rally among banks, energy stocks as well as BT as attention turned to closely-watched U.S. jobs data due later in the day.
The pan-European STOXX 600 index was up 0.4 percent, set for its third straight session of gains. The index, however, was on track to post a slight loss for the week.
Eurozone banking stocks rose 2 percent, extending their rally from the previous session and hitting their highest level in more than a year on expectations of future policy tightening from the European Central Bank.
On Thursday, the ECB indicated a diminishing urgency for more policy action, signaling an optimistic outlook for the European economy and sending banking shares higher. Money markets are now pricing in an ECB interest rate hike by March 2018.
The STOXX banking index also gained 1.1 percent and was the top sectoral performer. Banco BPM, Bank of Ireland and UniCredit were among top gainers.
"Higher yields mean that (financials) will have better prospects for revenues, less pressure on their shoulders to generate revenues and that's all good news for financials," Ipek Ozkardeskaya, senior market analyst at London Capital Group, said.
A rise in oil & gas shares also helped, partially recovering losses from the previous session as the price of oil rose from a three-month low.
BT was among top STOXX gainers, with the British telecoms group rising more than 4 percent after reaching a deal with regulator Ofcom to legally separate its Openreach network division.
"We see this as positive for investor sentiment on BT in terms of removing a notable overhang, an absence of negative surprises and avoiding a prolonged period of uncertainty had Ofcom taken its case to the EC," analysts at UBS said in a note.
Among fallers, property developer Segro declined more than 4 percent after buying the remaining 50 percent stake in the Airport Property Partnership (APP) joint venture, as well as announcing a rights issue to raise 573 million pounds sterling to finance the acquisition.
All eyes were on U.S. non-farm payrolls, due for release at 1330 GMT, for clues as to the likelihood of an interest rate hike from the U.S. Federal Reserve next week.
"For banks such as Barclays ... we could see that move as they have a significant investment banking operation in the U.S.," Henry Croft, research analyst at Accendo Markets, said. (Reporting by Kit Rees, Editing by Vikram Subhedar and Toby Chopra)