European shares finish near three-week high, luxury shines; Fed's next move awaited

By Tristan Veyet, Johann M Cherian and Nikhil Sharma

, Reuters - European shares closed near a three-week high on Monday, with luxury and defence stocks boosting the main index ahead of key meetings at the U.S. Federal Reserve and other central banks.

The pan-European STOXX 600 ended 0.42% higher at 557.16 points, led by a 1.9% rise in the region-wide luxury index.

Marquee fashion names LVMH, L'Oreal jumped 2.7% and 1.9% respectively, while Kering rose 5.8%. Brunello Cucinelli gained 5.6% after J.P.Morgan initiated coverage with an "overweight" rating.

French luxury stocks have come into the spotlight following the death of designer Giorgio Armani, who included directions on the possible sale of his fashion house in his will, giving priority to LVMH, L'Oreal and eye wear leader EssilorLuxottica.

"This is one of the world's most valuable private luxury brands, and if it were to go public in any way, then that would be extremely encouraging for the sector as a whole," Fiona Cincotta, senior market analyst at City Index, said.

The European aerospace and defence index continued with its historic run, jumping 1.74% to a new high.

Investors have increasingly turned to defence stocks as European governments raise military spending to strengthen NATO and reduce their dependence on the United States.

The index has risen more than 200% since Russia invaded Ukraine in February 2022.

European chip stocks also boosted the main index, with BESI, ASML and ASMI rising between 5.6% and 6%.

The moves contrasted with their Wall Street peers, which weakened after China announced an anti-discrimination and anti-dumping investigation into U.S. chip trade policy on Saturday.

Overall gains on the STOXX 600 were also boosted by expectations that the U.S. Fed will deliver at least a 25-basis-point cut on Wednesday - its first potential dovish monetary policy move this year.

Several central banks will announce their policy decisions this week, including those in Britain, Japan and Canada.

Fitch's rating downgrade of France's sovereign credit late on Friday did not seem to hurt the benchmark CAC 40 index, which jumped 0.9% to a three-week high, while domestic bonds held steady.

"The CAC 40 is not really even blinking to a Fitch rate decision," Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said.

"The reason for that is that the optimism (about Fed interest rate cuts) is echoing through the global financial markets right now, including French stocks."

UBS rose 2.3% after reports the lender was considering a move to the United States in response to proposals from the Swiss government on new capital requirements.

A report of bids for Rubis from CVC Capital Partners and Trafigura lifted the fuel retailer's shares 7% to the top of the STOXX 600 index.

AstraZeneca remained a drag, falling 3.2%, after Handelsbanken cut its rating on the drugmaker and Reuters reported the company had paused a major investment in its home market.

(Reporting by Tristan Veyet in Gdansk and Johann M Cherian in Bengaluru; Editing by Janane Venkatraman, Sonia Cheema and Andrew Heavens)