* Technology shares lead gains in Europe

* Burberry ( BBRYF ) slides after recovery weighed down by Iran war

impact

* Watches of Switzerland ( WOSGF ) jumps on upbeat FY profit

outlook

* Markets see over two ECB rate hikes this year on

inflation worries

(Updates after markets close)

By Twesha Dikshit and Avinash P

May 14 (Reuters) - European shares closed higher on

Thursday, after hitting the highest in a week with a boost from

technology stocks, while investors remained cautious about

developments in the U.S.-China talks.

The pan-European STOXX 600 ended up 0.8% at 616.05

points on broad-based gains.

The technology sector index jumped 2.6% led by

semiconductor stocks, with STMicroelectronics up

5.4%, BE Semiconductor up 3.3% and Infineon

jumping 5.7%.

Germany's DAX advanced 1.3% and led regional

bourses higher, with SAP adding 3.6%. Bank of America ( BAC )

said the software giant's ongoing cloud momentum and backlog

growth of around 25% could boost revenue by double digits,

supported by operating leverage and AI, alongside potential

upside from capital deployment.

However, the continent's exposure to AI hardware firms pales

in comparison with its U.S. and Asian peers, prompting many

investors to look beyond European markets.

"It's the theme that's been working against Europe for the

last four years since the debut of ChatGPT in late 2022. That's

been the most persistent reason for underperformance and more

recently, it has to do with the energy imports and political

instability," said Sameer Samana, head of global equities and

real assets at Wells Fargo Investment Institute.

The UK is the latest country to witness political upheaval

in Europe after the ruling Labour party's Wes Streeting resigned

as health minister, raising doubts on Prime Minister Keir

Starmer's leadership.

Global attention was also on the U.S.- China bilateral

meeting in Beijing. Investors hoped President Donald Trump could

encourage China to convince Iran to make a deal with Washington

to end the war that has sent crude prices up to $100 a barrel.

"We await the developments in China ... all eyes are on the

Middle East crisis for that to really be resolved," said

Frédérique Carrier, head of investment strategy at RBC Wealth

Management.

Among others, luxury brand Burberry shed 6.8% after

reporting fourth-quarter sales in line with expectations, while

Watches of Switzerland ( WOSGF ) jumped 19.2% on forecasting

full-year operating profit above expectations.

Investment company 3i Group ( TGOPF ) slumped 12.7% after its

key portfolio company Action's like-for-like sales growth slowed

to 2.4% in 19 weeks to May 10 versus 6.8% a year ago.

On the policy front, the European Central Bank's chief

economist Philip Lane said interest rate hikes might be required

to deal with inflation. Money markets currently price in more

than two ECB rate increases this year.