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European shares hit five-week high on rebound optimism, stimulus hopes

10/12/2020 | 12:13pm EST
FILE PHOTO:  The German share price index DAX graph at the stock exchange in Frankfurt

(Reuters) - European shares hit a five-week high on Monday as optimism about a stable economic recovery in China and hopes of more U.S. fiscal stimulus helped offset concerns around surging COVID-19 cases across the continent.

The pan-European STOXX 600 marked a third straight day of gains to end 0.7% higher, led by utilities <.SX6P>, technology <.SX8P> and autos stocks.

The Trump administration on Sunday called on the U.S. Congress to pass a stripped-down coronavirus relief bill after talks stalled on a more comprehensive stimulus deal.

"Investors have not lost faith that further stimulus measures will follow and that an effective COVID-19 vaccine will soon be placed on the market," said Milan Cutkovic, market analyst at Axi.

But a jump in domestic coronavirus cases has raised the spectre of fresh lockdowns and cast a shadow over a nascent economic rebound.

With Italy preparing for nationwide curbs, the European Central Bank's chief economist, Philip Lane, said the euro zone economy was entering a tougher phase. UK Prime Minister Boris Johnson also imposed a tiered system of further restrictions on parts of England, including closing some pubs.

British pub and restaurant owners Marston's Plc and Restaurant Group Plc fell 5.3% and 9.3%, respectively, while the blue-chip FTSE 100 lost 0.3%. [.L]

"Investors are walking on thin ice," Cutkovic said. "Further lockdowns would jeopardise the already fragile economic recovery and have lasting effects on consumer confidence."

Data on inflation, industrial production and business conditions is due later in the week. All eyes will also be on a European Union summit on Oct. 15 and 16, particularly with a UK-imposed deadline for a post-Brexit trade deal.

"It seems progress has been made and if this continues, I would expect talks to continue beyond that self-imposed UK deadline," said Deutsche Bank strategist Jim Reid.

The Italian bourse ended 0.6% higher, shrugging off a slide in bank stocks as Italian government bond yields fell near record lows on expectations of a new round of stimulus from the European Central Bank.

As the third-quarter corporate earnings season gets under way, analysts expect earnings at STOXX 600 firms to have declined 38% year-on-year in the quarter following a 50.8% slump in the prior quarter, according to Refinitiv data.

The European telecoms index surged to a three-week high, powered by a 6.8% jump for Dutch telecommunications company KPN following a report that Sweden-based private equity firm EQT was considering a takeover.

(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Arun Koyyur and Anil D'Silva)

By Sagarika Jaisinghani

© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
DEUTSCHE BANK AG -1.25% 9.503 Delayed Quote.39.12%
EURO / BRITISH POUND (EUR/GBP) -0.01% 0.89001 Delayed Quote.5.09%
EURO STOXX 50 0.11% 3511.9 Delayed Quote.-6.33%
MARSTON'S PLC -0.36% 68.75 Delayed Quote.-45.75%
MSCI UNITED KINGDOM (STRD, UHD) -0.54% 1001.749 Real-time Quote.-17.10%
ROYAL KPN N.V. 2.05% 2.534 Delayed Quote.-5.63%
STOXX EUROPE 600 -0.08% 392.09 Delayed Quote.-5.64%
STOXX EUROPE 600 NR -0.08% 863.26 Delayed Quote.-3.74%
THE RESTAURANT GROUP -1.95% 65.5 Delayed Quote.-59.02%
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