UPDATE 2-European shares boosted by Novartis, telecom stocks slide

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STOXX 600 up 0.6%, Swiss stocks outshine peers

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Novartis gains after forecast upgrade

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Tele2 shares at 5-yr low after 'mixed' Q2

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Ocado surges on return to underlying profit

(Updated at 1607 GMT)

By Amruta Khandekar and Shristi Achar A

July 18 (Reuters) - European shares rose on Tuesday as Swiss stocks firmed on a forecast upgrade by drugmaker Novartis, though a slide in shares of Sweden's Tele2 pushed the telecom sector index to its lowest level in over six months.

The pan-European STOXX 600 ended 0.6% higher, after declines on Monday amid weak economic data from China pummelling Europe's luxury sector.

Falls in the sector at the start of the week amid worries about China's faltering economic growth pressured the main index after stellar gains last week driven by hopes that the U.S. Federal Reserve's interest rate hiking cycle was close to an end.

"European investors are reassessing the depths of yesterday's sell-off and doing some bargain hunting," said Steve Sosnick, chief strategist at Interactive Brokers.

Novartis climbed 4.6%, helping boost the STOXX 600, after raising its full-year earnings guidance and mapping out plans to spin off its generic medicines division Sandoz in early October.

The Swiss Market index, which had led regional declines in Europe on Monday, gained 1.2%.

Europe's healthcare sector, up 1.2%, also got a boost from 3.4% gains in shares of Swedish Orphan Biovitrum (SOBI) after the drugmaker posted upbeat quarterly earnings.

Telecom firms slipped 0.9%, to their lowest level since late December, with Tele2 AB plunging 10.6% to a five-year low following "mixed" second-quarter results.

Meanwhile, analysts have pointed to sticky price pressures in the euro zone and the UK, which could lead to further monetary tightening in those regions.

The focus will shift to highly anticipated central bank policy meetings next week, including those of the European Central Bank and the Fed.

"The ECB is in sync with the U.S. cause the timing is very similar... The market is anticipating those pretty reasonable expectations of at least one more hike into the end of the year," Sosnick said.

Second quarter corporate earnings have kicked off, and investors will be much more interested in understanding the outlook for the third quarter in the backdrop of a deteriorating macro and faltering economic recovery in China, said Luca Finà, head of equity at Generali Insurance Asset Management.

Ocado shares jumped 19.0% to top the STOXX 600 after the British supermarket chain returned to underlying profit in its first half.

Nel jumped 10.9% to hit a one-month high after the Norwegian hydrogen technology provider posted a smaller-than-expected quarterly loss. (Reporting by Amruta Khandekar, Shreyashi Sanyal, Shristi Achar A; Editing by Dhanya Ann Thoppil)