European stocks recoup early losses on economic growth prospects

The index had snapped a four-week winning streak following signals from the Fed that it could raise interest rates much sooner than expected. But strong gains in automobile and chemical stocks fished the index from more than two-week lows, as investors bet that a steady vaccination program will drive a strong economic recovery in the euro zone.

European stocks recovered from early losses on Monday, led by growth-exposed sectors as the prospect of a strong economic recovery this year offset recent jitters caused by a hawkish U.S. Federal Reserve.

The pan-European STOXX 600 index rose 0.2% by 1332 GMT after falling to its lowest since June 3 earlier in the session. The index had snapped a four-week winning streak following signals from the Fed that it could raise interest rates much sooner than expected.

But strong gains in automobile and chemical stocks fished the index from more than two-week lows, as investors bet that a steady vaccination program will drive a strong economic recovery in the euro zone. Automobiles surged 2.4% after lagging most of their peers last week, while chemicals added 1.2%, hovering near record highs.

Basic resources surged 1% after hitting a near three-month low. Industrial stocks have largely benefited from improving sentiment over manufacturing activity, as more economies open up from COVID-related lockdowns.

"We believe the Fed's new outlook will not translate into significantly higher policy rates any time soon," BlackRock analysts said in a note. "Within equities, we have been warming up to cyclical stocks as the (economic) restart broadens globally, as reflected in an overweight call on UK equities and our upgrading of European equities to neutral earlier this year."

The benchmark STOXX 600 scaled record highs this month after the European Central Bank, in stark contrast to the Fed, said it was premature to discuss tapering its pandemic-era monetary stimulus. Focus on Monday will be on a speech by ECB President Christine Lagarde to the European Parliament, while later in the week, investors will keep a close eye on business activity data from across the euro zone for clues on whether a recent surge in inflation will persist.

London's FTSE 100 rose 0.1%. The Bank of England is expected to keep interest rates at a record low when it convenes on Thursday. Shares in Morrisons, Britain's fourth largest grocer by sales, were up 32.3% after it rejected an offer worth 5.52 billion pounds ($7.62 billion) from private equity firm Clayton, Dubilier & Rice.

Rivals Tesco and Sainsbury's rose 1.3% and 3.8%, respectively, while an index tracking UK personal goods and grocery stores stocks rose 0.8%. Italian-American vehicle maker CNH Industrial rose 0.7% after agreeing to a deal to buy Raven Industries at an enterprise value of $2.1 billion.

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