* Europe's STOXX 600 gains 1.4%

* Oil prices fall

* Markets bet on relief rally

By Elizabeth Howcroft

LONDON, March 25 (Reuters) - European stock indexes rose

and oil prices were down on the day on Wednesday, after markets

got a boost from reports that the U.S. is seeking a month-long

ceasefire with Iran, even though Iran rejected the idea of

negotiations.

U.S. President Donald Trump told reporters on Tuesday that

the U.S. was making progress in negotiating an end to the war,

raising hopes that oil could start being exported from the

Persian Gulf again. Traders were cheered by reports of the

ceasefire proposal and that the U.S. had sent Iran a 15-point

plan for discussion.

Iran denied that direct talks had taken place and an Iranian

military spokesman said the United States is negotiating with

itself, according to state media.

Still, markets took a positive turn, making modest gains

during Asian trading.

European stock indexes rose, with the STOXX 600 up 1.4% on

the day at 1036 GMT - a rebound which did little to counter its

overall decline so far in March, leaving it down 7.3% on the

month. London's FTSE 100 was up 1.1% on the day.

"The mood is on the positive side," said Amelie

Derambure, senior multi-asset manager at Amundi. "(The) market

is trading now the idea that peace talks or a ceasefire could be

on the way."

Derambure said that traders were positioning themselves to

avoid missing out on a possible "relief rally", when markets

rise on positive news, although she added that more convincing

news will be needed for the move to be sustained.

Some analysts cautioned against expecting the war to end

soon.

"It is probably too early to expect any big drop in energy

prices or a much softer dollar this week," ING's global head of

markets Chris Turner wrote in a research note.

OIL EASES, BOND YIELDS FALL

Oil prices, which have risen sharply since the U.S.-Israeli

war on Iran began, eased slightly, with Brent crude futures

down 5.2% at $99.01 a barrel, and U.S. West Texas

Intermediate crude futures down 5.1% at $87.62 a barrel.

Iran has said that "non-hostile vessels" may cross the

Strait of Hormuz if they coordinate with Iranian authorities,

but the waterway, which typically carries about one-fifth of the

world's gas and crude supply, remains effectively closed.

European government bond yields fell, in a move led by

Italian bonds, which had been particularly hard hit since the

war started due to Italy's dependence on fossil fuel imports.

The benchmark 10-year German yield was at 2.9724%

. The euro was down by 0.1% at $1.1598.

Data showed German business morale fell sharply in March, as

the Iran war made companies more pessimistic, threatening the

recovery of Europe's biggest economy.

The U.S. dollar rose slightly against a basket of

currencies, with the dollar index at 99.333. The U.S.

10-year yield was at 4.3302%.

Gold prices rose, as falling oil prices eased some of

the concerns about inflation.

The war has killed thousands of people, created the worst

energy shock in history and sparked global inflation fears. Gulf

Arab states told the U.N. on Wednesday that they face an

existential threat from Iran.

BlackRock ( BLK ) CEO Larry Fink told the BBC that oil

prices could reach $150 a barrel and cause a global recession.