* Europe's STOXX 600 hits 2-week high
* U.S., Mexico reach NAFTA deal
* Autos, basic resources lead gains
* Sydbank sinks 11 pct (Updates prices, adds quotes, details)
By Kit Rees and Helen Reid
LONDON, Aug 28 (Reuters) - European shares hit a two-week high after the United States and Mexico reached a trade agreement, though they gave back gains during the day to end flat, while autos stocks enjoyed a relief rally.
The pan-European STOXX 600 index hit a two-week high on the news before ending the day flat, while Germany's exporter-heavy DAX fell 0.1 percent.
Britain's FTSE 100 rose 0.5 percent following Monday's holiday, helped by a subdued sterling.
European autos drove the market, rising 0.8 percent after the United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA). That puts pressure on Canada to agree to new terms on auto trade and dispute settlement.
"Trade is the number one factor driving markets right now," Jasper Reimers, market analyst at Vertex Capital Group, said.
"We've seen some developments between the United States and Mexico - hopefully they're going to start spilling over now," Reimers added.
Mining shares were also big risers, up 1.7 percent as copper prices rallied on the back of a weaker dollar, which makes greenback-denominated metals cheaper for holders of foreign currency.
Among individual stocks, shares in Danish brewer Royal Unibrew rose 4.8 percent after the company raised its outlook for the third time this year.
Shares in Sydbank fell 11.2 percent, however, after the Danish bank reported disappointing second-quarter earnings, missing profit forecasts.
Autos stocks were boosted not only by the NAFTA deal but also a note from Credit Suisse analysts arguing the sector could re-rate from "trough" levels and upgrading Renault.
Auto parts supplier Faurecia also got a boost from broker Kepler Cheuvreux raising the stock to "buy" from "hold".
South Africa exposed stocks Investec, Old Mutual , and Anglo American all rose amid a rally in emerging market assets after the NAFTA trade deal.
Italy's FTSE MIB underperformed the market again as motorway operator Atlantia fell 3.2 percent after the Transport Minister said the government would reject the firm's plan to rebuild the collapsed motorway bridge in Genoa.
Luxury stocks LVMH and Richemont climbed 1.6 to 1.9 percent after the Swiss competition authority WEKO declined to open a formal investigation into watchmakers over the supply of spare parts for independent watch repair shops.
Covestro shares fell 3 percent to the bottom of the DAX after Barclays cut its price target on the stock by 11 percent.
"High volatility has worked in Covestro's favour for some time but earnings are now inflecting," wrote Barclays analysts.
With the European earnings season nearing its end, actual earnings growth for the MSCI EMU (euro zone) index has come in at 6.9 percent in euro terms for the second quarter, according to Thomson Reuters I/B/E/S data.
While earnings growth has been fair for Europe, it has been nowhere near as strong as the 24.8 percent figure for the S&P 500. (Reporting by Kit Rees, editing by Larry King and Louise Heavens)