UPDATE 1-Huawei reprieve lifts European shares, Telecom Italia boosts Milan

By Agamoni Ghosh and Amy Caren Daniel

* Tech sector up as U.S. eases some Huawei restrictions

* Norsk Hydro jumps after Alunorte embargo lifted

* Sonova hits record high after results

* Autos reverse course, now trading lower (Updates prices, adds quote)

By Agamoni Ghosh and Amy Caren Daniel

May 21 (Reuters) - European shares regained ground on Tuesday led by the tech sector after the United States temporarily eased restrictions on China's Huawei.

The pan-European STOXX 600 index was up 0.4% by 0840 GMT, with the trade-sensitive DAX outperforming after the U.S. Commerce Department said it would allow Huawei Technologies to purchase American-made goods to maintain existing networks and provide software updates to existing handsets.

The news came as a relief to markets and lifted European chipmakers which had tumbled after reports suggested they may have to halt shipments to the Chinese telecoms tech giant.

"The slight concession on the part of the U.S., is just to keep channels open to make sure the relationship doesn't sour to the point where things can no longer continue," said Connor Campbell analyst at Spreadex in London.

The tech sector rose 1.4% after losing almost 3% on Monday with chipmakers AMS, STMicroelectronics and Germany's Infineon climbing between 2% and 6%.

Italy's biggest phone group Telecom Italia topped the Italian blue chip index after posting first-quarter earnings in-line with expectations and confirming its guidance for the next three years.

"Results are broadly in line to slightly ahead, net debt progress is encouraging, but questions will be asked about rate of fixed broadband losses," said Berenberg analysts in a note.

The telecoms sector is the only pan-European sub-sector in the red this year, thus any sign of progress is generally well received by the market.

UDG Healthcare scaled a more than eight month high to land on top of the STOXX 600, after the company raised its 2019 adjusted profit forecast.

Norsk Hydro climbed 5% after Brazil gave the Norwegian metals maker the go ahead for its Alunorte alumina plant to reopen, while Swiss hearing aid maker Sonova reported an increase in full-year sales, sending its shares up 4%. Struggling Spanish retailer DIA jumped 5% after reaching an eleventh-hour agreement to secure financing, staving off the imminent risk of having to start insolvency proceedings.

Car makers and their suppliers which initially rose about 1% higher reversed course. Daimler shares were marginally higher after German newspaper Handelsblatt reported the company was looking to cut administration costs by 20%.

The banking index, which closed at a more-than three-month low in the previous session, gained 0.3%, while defensive stocks including real estate, utilities and telecoms underperformed.

But investors remained cautious as the sudden about-turn in China-U.S. talks over the last two weeks shattered confidence in a speedy resolution to the trade war that has roiled financial markets for a year.

European equities have outperformed Wall Street since the tariff war re-intensified on May 9, with the STOXX 600 rising 0.4% but the U.S. benchmark S&P 500 index losing almost 1% during the same period. (Reporting by Agamoni Ghosh and Amy Caren Daniel; Additional reporting by Helen Reid Editing by Kirsten Donovan/Keith Weir)