* UK parliament deals crushing blow to Brexit deal
* FTSE 100 down 0.5 pct, Euro Stoxx up 0.5 pct
* Bank shares jump (Adds closing prices)
By Helen Reid
LONDON, Jan 16 (Reuters) - European shares closed the day in positive territory on Wednesday as British Prime Minister Theresa May's resounding defeat in a parliamentary vote on her Brexit deal gave a boost to continental banks.
Analysts and investors interpreted the outcome as a positive for the market, making a "softer, later" Brexit more likely despite the uncertainty ahead of a no confidence vote in May's government later on Wednesday.
The Euro Stoxx .STOXXE finished the session up 0.5 percent, with most indexes on the continent in the black while London's FTSE lagged, down 0.5 percent, as a firming pound weighed on multinational exporters which make the lion's share of their earnings in foreign currencies.
The FTSE 250 .FTMC , a benchmark for domestically exposed UK firms, rose 0.3 percent with homebuilders and local retailers making big ga8ins.
Euro zone banks shares .SX7E were the biggest boost to European indexes, rising 2.4 percent to their highest in over a month as investors bet that a disruptive no-deal Brexit was less likely after the parliamentary vote.
Some analysts cautioned however that the new found optimism might be short-lived.
"Unfortunately, everything remains possible: new elections, an extension of the deadline for Article 50, or even a second referendum," said Stefan Kreuzkamp, chief investment officer at DWS.
In Germany, Deutsche Bank DBKGn.DE shares spiked higher in afternoon trading after a Bloomberg report said regulators would prefer the German lender to merge with a European rival rather than local competitor Commerzbank CBKG.DE . in Deutsche Bank, which hit their lowest level on record last month, were up 8.4 percent while Commerzbank CBKG.DE share also rallied 7.4 percent.
Elsewhere in Europe results and dealmaking news drove moves, with stocks shrugging off the night's political developments.
Danish freight company DSV DSV.CO climbed 5.8 percent after it made a bid for Swiss logistics company Panalpina PWTN.S valuing the company at $4.1 billion. shares soared 27.7 percent after the bid which, at 170 Swiss francs per share, represents a 24 percent premium to the stock's closing price on Tuesday.
"We can see the strategic logic for DSV, as the deal would give them a large opportunity to scale their process and IT capabilities. But a deal of this magnitude will not be without risk," wrote Bernstein transport analyst Daniel Roeska.
Norwegian aluminium maker Norsk Hydro NHY.OL rose 5.2 percent after it said Brazil's northern state of Para lifted a production embargo on its Alunorte alumina refinery. Valuations
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