By Amruta Khandekar and Shristi Achar A
(Reuters) -European shares kicked off the week on a higher note on Monday, boosted by gains in financial and mining stocks, while investors remained risk-averse on prospects of escalation in the Middle East conflict.
The STOXX 600 closed 0.2% higher with miners and retail stocks leading sectoral gains.
Israeli forces kept up their bombardment of Gaza on Monday after diplomatic efforts to arrange a ceasefire to allow foreign citizens to leave and aid to be brought into the besieged Palestinian enclave failed.
The Euro STOXX volatility index hit an eight-week high earlier in the session.
The mining index rose 1.8% as prices of base metals were lifted by hopes of stronger demand from China. [MET/L]
Also boosting the index was a 2.4% gain in the shares of SSAB after JP Morgan upgraded the Swedish steel company to "overweight" from "neutral."
Financials added 1.0%, with a 1.9% rise in UBS after RBC upgraded the Swiss lender to "outperform."
Concerns of a resilient euro zone labour market and fears over the Middle East conflict have kept investors on the edge recently, although dovish commentary from a U.S. Federal Reserve policymaker soothed some nerves.
"There is still a bit of a risk averse sentiment around," said Susannah Streeter, head of money and markets at Hargreaves Lansdown (LON:HRGV).
"(But) you had one Fed policymaker indicating that he thought potentially that the Fed would be done with rate hikes ... that's where sentiment has shifted back to some extent."
Elsewhere, Poland's WIG20 index rose 5.3%, outperforming other European indices after opposition looked on track to form the next government after official partial results and exit polls showed the ruling nationalists losing their parliamentary majority.
Meanwhile, Italy's government approved a budget for next year with measures worth around 24 billion euros ($25.3 billion) in tax cuts and increased spending, despite market concerns over the country's strained public finances.
The FTSE MIB added 0.6%.
Among other stocks, Frankfurt-listed shares of BioNTech (NASDAQ:BNTX) fell 7.2% after partner Pfizer (NYSE:PFE) on Friday slashed its full-year revenue forecast on lower sales of its COVID-19 vaccine and treatment.
British online supermarket Ocado (LON:OCDO) fell 5.8% after Barclays (LON:BARC) downgraded the stock to "underweight" from "equal-weight."
Shares of Telecom Italia (BIT:TLIT) slid 6.2% on uncertainty over the prospects for a multi-billion euro approach filed by U.S. fund KKR.