By Devik Jain and Amruta Khandekar

(Reuters) -European shares rose sharply on Tuesday, in line with global peers, boosted by growing hopes that central banks may ease the pace of future interest rate hikes as they attempt to bring down high inflation.

The region-wide STOXX 600 index climbed 3.1%, extending gains for a third straight day and logging its best session since mid-March. Stocks had fallen sharply in September, driven by jitters around rising rates, with the UK government's fiscal plans further rattling investors in the last week of the month.

"We're seeing a bit of an unwind in circumstances that had everybody in a panic last week. Today, the psychology is that we've seen the worst of the rate hikes behind us," said Steve Sosnick, chief strategist at Interactive Brokers.

Globally, equities received a shot in the arm after manufacturing data from the United States on Monday sparked hopes that rising rates were starting to dampen demand and central banks may start to tone down their hawkish approach. [MKTS/GLOB]

Adding to the optimism was a surprise decision by Australia to raise rates by a smaller-than-expected 25 basis points.

Meanwhile, euro zone producer prices jumped slightly more than expected in August, data showed on Tuesday, driven mainly by continuously rising energy costs, but price increases excluding that most volatile component decelerated.

"Any improvement in core inflation should be taken as pretty good news by markets because that is one of the things that would cause central banks to be less aggressive in their hiking," said Sosnick.

London's blue-chip FTSE 100 index rose 2.6%, building on gains from the previous session after the UK government reversed parts of its controversial tax cut plans.

The STOXX 600 index has fallen 17.4% so far this year as the region grapples with an energy crisis exacerbated by the Russia-Ukraine conflict and growing concerns about a recession with aggressive policy moves by the U.S. Federal Reserve and other central banks to quell inflation.

All of the STOXX 600's sectoral indexes gained, led by a 6.2% jump in travel and leisure stocks.

Tech stocks rose 5.1%, helped by gains in chipmakers, including ASML, STMicroelectronics and Infineon after the European Parliament approved rules to introduce a single charging port for mobile phones, tablets and cameras.

Sika gained 6% after the chemicals maker raised its full-year sales forecast.

(Reporting by Devik Jain and Amruta Khandekar in Bengaluru; Editing by Savio D'Souza, Uttaresh.V and Jonathan Oatis)