UPDATE 2-Oil boost and Italy budget hopes support European shares

* STOXX 600 up 0.45 percent

* Oil stocks hit highest since mid-July

* Italian stocks helped by budget compromise talk

* Next shines after raising full-year guidance (Adds closing prices)

By Danilo Masoni

MILAN, Sept 25 (Reuters) - European shares closed higher on Tuesday boosted by gains among oil stocks and optimism over the Italian budget while British clothing retailer Next NXT.L rallied after raising its profit guidance.

The pan-European STOXX 600 .STOXX index rose ended the day up 0.45 percent, recovering part of the losses suffered in the previous session when worries over a protracted U.S.-Sino trade war sparked profit-taking.

The oil and gas index .SXEP jumped 1.7 percent and reached its highest level since May.

Oil majors BP BP.L , Shell (LON: RDSa ) RDSa.AS and ENI ENI.MI rose 2.9 percent, 2.5 percent and 2.4 percent respectively more after Brent hit a fresh four-year high amid looming U.S. sanctions against Iran and an apparent reluctance by OPEC and Russia to raise output to offset the expected to hit to supply.

"Russia and Saudi Arabia essentially ignoring Trump's pleas, combined with U.S. sanctions hitting Iran's oil exports in early November means we expect fresh multi year highs for oil, which will also help the oil majors such as BP and Shell to gain ground in the near term," LCG analyst Jasper Lawler said.

Commodities also rose with basic materials .SXPP up 1.8 percent.

Signs that Italy's coalition was likely to reach a compromise over the 2019 budget lifted Italian stocks and bonds with the country's top FTSE MIB .FTMIB equity index up around 1.5 percent, outperforming the broader market. banks .FTIT8300 , which are sensitive to political risk due to their big sovereign bond holdings, rose 1.5 percent. Their gains helped and growing expectations of a rate hike in the euro zone next year helped lifted the European banks .SX7P up 0.7 percent. Italian defence contractor Leonardo LDOF.MI rose more than 3 percent after it won a helicopter order from the U.S. Air Force.

One of the top gainer on the STOXX was Next, up 7.7 percent.

The clothing retailer posted a 0.5 percent rise in first-half profit and raised its full-year guidance after better-than-expected trading in August and early September. [nL8N1WB0ZL

Heavyweight drugmaker Novartis NOVN.S rose 1.7 percent after saying it would cut about 2,200 jobs in Switzerland over the next four years to help boost profitability.