(Reuters) - European shares rallied to four-month highs on Tuesday, with Germany’s blue-chip DAX turning positive for the year, after EU leaders agreed on a landmark stimulus package to revive the bloc’s economies from a coronavirus-induced slump.

The pan-European STOXX 600 jumped 1.1% to its highest level since March 5, while an index of euro zone blue-chip stocks .STOXX50E was up 1.7% at its highest since March 3.

The global mood also brightened on growing optimism about a COVID-19 treatment after promising early data from trials of three potential vaccines. [GLOB/MKTS]

European Union leaders clinched a “historic” deal in the early hours of Tuesday on a 750-billion-euro ($856 billion)recovery fund and its related 1.1-trillion-euro budget for 2017-2021 that they hope will help repair the continent’s deepest recession since World War Two.

“It will add to the foundation of the current bull market,” said Teeuwe Mevissen, senior macro strategist at Rabobank.

“It will have a long-term impact in the sense that if the European Union finds itself in a similar situation in the future, then markets will expect that governments will come to the rescue.”

Germany's DAX .GDAXI surged 1.9% to erase all its losses for the year. The index is hovering near Feb. 24 highs, boosted by tech major SAP SE (SAPG.DE).

A gauge of European stock market volatility .V2TX sank to its lowest since Feb. 25.

Blue-chip share indexes in Spain .IBEX and Italy .FTMIB, which are among the south European countries set to benefit from the EU deal, gained 2.1% and 2.4% respectively, while euro zone banks .SX7E jumped 4%.

Bayer AG (BAYGn.DE) rose 2% after a California appeals court reduced the amount of damages by 74% in a case claiming the company’s Roundup weed killer caused cancer.

Adevinta ADEV.OL soared 36.4% after U.S. firm Ebay Inc (EBAY.O) agreed to sell its classified ads business to the Norwegian group in a deal worth $9.2 billion.

In earnings-driven moves, Logitech International SA (LOGN.S) rose 0.2% after the maker of computer peripherals raised its outlook for fiscal 2021.

Premium spirits maker Remy Cointreau SA (RCOP.PA) gained 0.8% after it reported better-than-expected sales, due to resilient consumption in the United States and Britain.

Randstad Holding NV (RAND.AS), one of the world’s largest staffing companies, jumped 6.4% after the company reported a smaller-than-expected drop in quarterly core earnings.