* STOXX 600 up 0.4 percent; DAX gets closer to record high
* LSE, Deutsche Boerse rise after EU blocks merger deal
* Auto stocks rise helped by Daimler, upgrades
* Deutsche Bank outperforms amid optimism over cash call (Adds details, closing prices)
By Danilo Masoni and Helen Reid
MILAN/LONDON, March 29 (Reuters) - European shares rose on Wednesday with little reaction to the well-flagged formal announcement of Britain's intention to leave the European Union and start an uncertain two-year process of negotiation
The pan-European STOXX 600 index rose 0.4 percent to 378.5 points, its highest closing level in nearly 16 months, consolidating a rally that has been fuelled by brightening economic prospects in the region after years of sluggish growth.
Prime Minister Theresa May formally began Brexit proceedings on Wednesday, notifying EU Council President Donald Tusk that Britain is leaving the bloc it joined in 1973.
"I take a fairly relaxed view of the forthcoming Brexit negotiations," said Stefan Bielmeier, head of research and chief economist at DZ BANK in Frankfurt. "They will lead to repeated fluctuations, especially in the foreign exchange markets, but I do not expect any sudden slumps in equity or currency markets".
Bielmeier said he believed Britain would probably bear most of the brunt of the Brexit process, while he expected German companies to react relatively flexibly by diverting their investments and exports.
On Wednesday German blue chip index rose 0.4 percent to 12,203 points, its highest level since April 2015 and at a striking distance from a record high of 12,390 points hit then.
German carmaker Daimler rose 1 percent after it said it expected record sales for its Mercedes-Benz cars for the first quarter. Its gains drove export-oriented autos stocks up 0.5 percent. Automotive suppliers Faurecia and Valeo benefited from broker upgrades.
Merger talks between London Stock Exchange and Deutsche Boerse were halted after EU antitrust regulators blocked the proposed deal, as expected, saying the merger's size would have harmed competition.
LSE shares gained 2.7 percent, while Deutsche Boerse was up 2.3 percent.
Banks fell 0.2 percent, underperforming the broader market, after sources told Reuters that European Central Bank policymakers are wary of making any new change to their policy message in April, signalling that easy-money is far from ending.
Deutsche Bank rose 1.3 percent, bucking the weaker sector trend, as traders were upbeat about prospects for its 8 billion euros cash call which was in its second week.
Rights to buy the news shares offered in the recapitalization of the German heavyweight bank rose 5.4 percent.
Engie rose 2.9 percent to its highest in more than four months after JP Morgan upgraded its view on the gas and electricity supplier to overweight.
Top-ranked JPM analyst Vincent Ayral said Engie had reached an inflection point, with the dilutive effects of the company's transformation plan more than compensated by restructuring gains, supportive FX, and organic growth.
3I Group gained 5.7 percent after Morgan Stanley raised the private equity group to "overweight", saying the value proposition of Benelux-based discount retailer Action, an important part of 3I's portfolio, is not fully priced in to the shares.
German online classified ads firm Scout24 plunged 8.9 percent after it posted results and a 2017 outlook below consensus.
Outside of the benchmark indexes, shares of Germany's Aurelius slumped more than 35 percent with losses accelerating into the close of trading. Investors remained unconvinced with the company's rebuttal of short-seller Gotham City's report on the stock.
Editing by Jeremy Gaunt