* Thyssenkrupp up as Kone considers bid for elevator unit -sources
* Nestle clocks record closing high on talks over skin health sale
* Norsk Hydro up 4.9% after court lifts one production embargo
* Ubisoft slides after results miss (Updates to close, recasts, adds market economist's quote)
By Medha Singh and Aaron Saldanha
May 16 (Reuters) - European shares reversed course to end in positive territory on Thursday, with deal-making news in Germany helping to prop up the pan-European benchmark as it overcame fears of an escalation in the U.S.-China trade war.
The STOXX 600 index rose 1.3% to a 10-day closing peak after shrugging off early weakness triggered by the White House imposing severe sanctions on Chinese telecoms giant Huawei late on Wednesday.
Rabobank market economist Stefan Koopman said that U.S.-China tensions have already been priced in and markets are more focused on the trade situation between Europe and the United States.
The latest Huawei sanctions helped rivals Ericsson and Nokia to advance by 2.1% and 4.1% respectively.
Paris-traded stocks rose 1.4%, matched by the Milan benchmark while London-listed equities firmed by 0.8%.
Germany's DAX jumped by 1.7% for a third consecutive daily gain, though tariff-sensitive automotive shares did not contribute. The gains in Frankfurt were mainly driven by news of corporate deals.
Thyssenkrupp soared with a 9.4% advance after Reuters reported that Finland's Kone might bid for the German group's elevator division. Kone shares added 5%.
Lighting group Osram Licht gained 5.3% to 28.80 euros after it said that talks with Bain and Carlyle were continuing. German magazine Boerse Online said the private equity groups could bid with an offer price of 35 euros per share.
Basic materials stocks rose by 1.6%, with Norsk Hydro up 4.9% after a Brazilian federal court lifted one of two production embargoes on a plant owned by the Norwegian metals producer.
Nestle SA was up 1.8% at a record closing high. The Swiss group said it entered exclusive talks to sell its skin health business to a consortium led by private equity firm EQT Partners in a deal worth 10.2 billion Swiss francs ($10.1 billion).
If it goes through, the deal will be the second-largest private equity-backed deal in Europe since the financial crisis, Refinitiv data shows, and comes as the food group shifts its portfolio in response to changing consumer demands.
Automakers and their suppliers fared less well, shedding 0.5% after the previous session's 2% gain.
French video games group Ubisoft Entertainment, meanwhile, slumped by 12.7% after fourth-quarter results missed market forecasts. ($1 = 1.0097 Swiss francs) (Reporting by Medha Singh and Aaron Saldanha in Bengaluru Editing by David Goodman)