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* STOXX Europe 600 index up 1.5 pct
* Basic Resources biggest sectoral gainer
* Banks rise after Bank of America upgrade
* Burberry slumps after update
By Danilo Masoni and Atul Prakash
MILAN/LONDON, Oct 18 (Reuters) - European shares bounced back on Tuesday, with mining stocks and banks leading the way, while Burberry slumped following its earnings update.
The pan-European STOXX 600 index rose 1.5 percent to its highest level in nearly one week. However, the benchmark index is still down over 6 percent so far this year.
The market was helped by a 2.8 percent rally in the STOXX Europe 600 Basic Resources index, the top sector gainer, as metals prices rose, boosted by strong credit data in top metals consumer China and a weaker dollar.
The European oil and gas index also increased 1.1 percent on the currency moves and comments from some analysts that markets might not be quite as over-supplied as thought.
"The market has been trading in a sideways range for a couple of months now. However, depressed stocks and sectors have seen some rebound, with commodities stocks falling in that segment," said Gerhard Schwarz, head of equity strategy at Baader Bank in Munich.
Glencore Polymetal, Royal Dutch Shell , ENI rose between 1.1 to 3.4 percent.
Danish jeweller Pandora soared 7.3 percent, the top gainer in the STOXX 600 index, with traders citing a bullish survey from Swedish broker Carnegie.
On the downside, Burberry fell 7.2 percent, even after the British luxury fashion label reported a better-than-expected rise in second-quarter retail sales.
Traders said the stock was hit by some negative broker notes. The group's total sales also fell 4 percent on an underlying basis in the six months to end-Sept, hit by a fall in wholesale and licensing revenues.
"FX benefits aside, Burberry struggles to drive meaningful growth," Liberum analysts said in note, adding that its valuation was at a premium.
Before Tuesday's fall, Burberry shares had jumped nearly 50 percent since June.
French testing, inspection and certification company Bureau Veritas fell 2.7 percent after the company cut its outlook for full year 2016 as the weakness in the oil and & gas and shipping markets weighed on its revenue.
Europe 600 Bank index rose 2.4 percent, the second biggest sectoral gainer, after Bank of America-Merrill Lynch upgraded regional banks to "overweight" on the back of light positioning, progress on restructuring in Italy and a turn in bond yields globally.. (Editing by Richard Balmforth)