UPDATE 2-European shares close at record highs on financials boost

(Adds missing figure in para 4)

*

Infineon jumps 12.9% on Q2 sales beat

*

Zalando surges on Q1 operating profit beat

*

French cognac companies up on China's attitude to trade dispute

*

ECB can't be lenient with structural inflationary forces - Nagel

(Updated at 1629 GMT)

By Ankika Biswas and Johann M Cherian

May 7 (Reuters) - European shares closed at record high levels on Tuesday, with financials stocks in the spotlight following upbeat earnings from Switzerland's UBS and Italy's UniCredit, while optimism around interest rate cuts also helped.

The pan-European STOXX 600 was up 1.1%, also clinching its best day in over three months, while a market fear gauge dropped to over a month's low.

The financials sector rose 2.5%, boosted by a 7.6% jump in UBS, after the lender's first quarterly profit since taking over Credit Suisse, was three times analysts' expectations.

UniCredit, Italy's second-largest bank, gained 3.6% to a 13-year peak, steering the banks' index 2.3% higher, as it raised its investor reward guidance after posting a much higher-than-expected profit and boosting capital levels.

Spain's main index rose 1.5%, with BBVA up 3.6% after Sabadell rejected the country's second biggest lender's takeover proposal.

Following a rough patch in April during which the main index lost over 1.5%, the STOXX recovery has gathered steam over the past three sessions, but is still lagging its peers in the U.S.

"Inflation is normalising and earnings are starting to pick up again, all at a time when valuations both in absolute terms, and relative to history, and against the United States, is still fairly low," said Maximilian Kunkel, chief investment officer for Global Family & Institutional Wealth at UBS.

On the day, Germany's DAX surged 1.4%, driven by a 12.9% jump in chip manufacturer Infineon after better-than-expected second-quarter sales, with analysts expecting long-term growth despite a full-year guidance cut.

Further, spirits makers Remy Cointreau and Pernod Ricard jumped 5% and 3%, respectively, after Chinese President Xi Jinping's "open attitude" towards a trade dispute over French cognac.

The retail sub-index also rose 1.4% as Germany's Zalando gained 8.5% after delivering a better-than-expected first-quarter operating profit.

On the flip side, German software developer TeamViewer dropped 8.1% after a first-quarter results miss, while Danish medical equipment maker Coloplast fell 3.5% after a second-quarter earnings miss.

Germany's Fresenius Medical Care shed 5.5% after only maintaining its 2024 profit outlook despite a first-quarter operating earnings beat.

Elsewhere, Britain's FTSE 100 hit a record high, up xx%, boosted by a 1.3% gain in Shell after Reuters reported its plans to sell the Malaysian gas station business.

Bundesbank President Joachim Nagel

said deep structural changes in the euro zone economy could put upward pressure on inflation for years to come but the European Central Bank should still not tolerate quicker price growth. (Reporting by Ankika Biswas and Johann M Cherian in Bengaluru; Editing by Sherry Jacob-Phillips, Savio D'Souza and Ed Osmond)