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UPDATE 2-European shares extend recovery rally as Brexit deal hopes strengthen

(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window)

* Brexit trade deal imminent - EU official

* Stronger pound caps gains on FTSE 100

* France agrees to lift UK border closures

* Daimler jumps on plans to list trucks division (Updates to close)

Dec 23 (Reuters) - European shares logged yet another day of strong gains on Wednesday, making up almost all of the losses at the start of the week, cheered by signs of an imminent Brexit trade deal.

Amid warnings that it could still go either way, talks between the European Union and Britain are in their “final stages” a source at the European Commission told Reuters, while other diplomatic sources said member states had started to prepare their procedure to implement any deal from Jan. 1.

The pan-European STOXX 600 index hit session highs on the news and closed up 1.1% in holiday thinned trade.

“The fact that they are still talking has given another reason to buy into the market,” said David Madden, market analyst at CMC Markets UK.

The index extended a recovery rally after a 2.3% slump on Monday when a mutant variant of the coronavirus was detected in the UK, sending markets into a tizzy.

London’s FTSE 100 reversed losses to pull into the black, but still lagged regional peers as the pound surged.

Further cheer came as France lifted its ban on UK travellers and freight after the variant, said to be significantly more transmissible than the original, had seen much of the world shut its borders to the island country, prompting warnings from supermarkets owners about food supply shortages.

Daimler was among the biggest boosts to the STOXX 600, up 3.3% after business newspaper Handelsblatt reported that the German carmaker is preparing a stock market listing of its trucks division.

Germany’s DAX jumped 1.3% in its last trading day of the week, capping weekly losses at 0.3%.

The travel and leisure sector gained the most on the day, followed by banks, while oil and gas stocks tracked a rise in crude prices.

The STOXX 600 is on course to end a tumultuous 2020 down about 5%, despite a stunning recovery from the coronavirus-fueled lows hit earlier in the year on ultra-easy monetary policy and vaccine optimism.

Banks and energy shares, closely linked to global growth expectations, are down around 25% so far this year, with Brexit uncertainty adding to the fall in lenders.

Travel shares, among the worst hit at the onset of the pandemic, are set to end about 16% lower - their worst year since 2008.

On the other hand, technology stocks, seen as winners of the work-from-home trend, are up 12%. (Additional reporting by Supriya R in Bengaluru; Editing by Sriraj Kalluvila and Shailesh Kuber)

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