European shares bounced back on Monday with financials in the lead, as investors found comfort in growing U.S. interest rate cut bets while monitoring the progress on a Ukraine peace plan.
The pan-European STOXX 600 gained 0.6% to 565.27 points by 0815 GMT. The index logged its steepest weekly drop since late July on Friday.
Investors cheered U.S. Federal Reserve policymaker John Williams' comments on Friday, where he said interest rates could fall "in the near term", boosting the likelihood of a rate cut at the Fed's December meeting.
The remarks come as other policymakers cautioned against further reductions until more clarity on U.S. economic health.
Heavyweight banks and technology stocks rose 1.1% each, while industrials rose 0.6%.
Meanwhile, the U.S. and Ukraine are set to continue work on a plan on Monday, after agreeing to modify an earlier proposal that was widely seen as too favourable to Moscow.
Defence stocks in Europe fell over 3% on Friday as peace talks progressed. On Monday, they were down 0.4%.
Bayer gained 8.9% to top the STOXX 600 after the pharma firm reported positive study results for its anticoagulant asundexian on Sunday.
This week, investors will be hawk-eyed on the British annual budget amid uncertainty over tax hikes on Wednesday and U.S. economic data through the week.
(Reporting by Purvi Agarwal in Bengaluru; Editing by Janane Venkatraman)
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