European shares end higher on hopes of German reforms, Ukraine ceasefire

By Nikhil Sharma and Purvi Agarwal

(Reuters) -European shares closed higher for a second day on Monday, supported by energy and healthcare stocks, with the focus on Germany's debt reform plans and the Russia-Ukraine conflict.

The pan-European STOXX 600 ended 0.8% higher, kicking off the week on a positive note. It extended gains from Friday, when it logged its biggest gain in over a month after Germany's political parties agreed on a historic deal to ramp up state borrowing.

The oil and gas sector led gains with a 1.5% rise, tracking higher crude prices after the U.S. vowed to keep attacking Yemen's Houthis until the Iran-aligned group ends its assaults on shipping. [O/R]

Healthcare stocks added 1.4%, logging their fourth straight gain and longest win streak since late January.

Luxury stocks fell. L'Oreal slipped nearly 1%, Kering dropped 2.8% and Burberry declined 4.3%, with the broader index off 0.6%.

Investors remained optimistic about German fiscal reforms, which, if passed, could be a bumper stimulus for the ailing economy, even though they were hit by last-minute legal challenges.

"The legislation is covered by less than 20 pages of text, so we think the legal risk here is low ... we still don’t think markets have fully caught up to how much of a game changer this will be for Germany over the next few years," said analysts at Deutsche Bank.

"Our economists believe this could lead to a fiscal stimulus of 3-4% of GDP by 2027 at the latest."

Germany's blue-chip index was 0.7% higher, and has outperformed local peers with an over 15% jump for the year.

Focus also remains on talks between Russian President Vladimir Putin and his U.S. counterpart Donald Trump on Tuesday, as an end to the Russia-Ukraine conflict is seen bringing lower energy costs across Europe.

Trump's threat to slap a 200% tariff on European wine and spirits last week, and his flip-flop trade policy, have created volatility in global markets, with investors awaiting more clarity on tariff implementation.

This week, major central banks, including the U.S. Federal Reserve and the Bank of England, are set to meet, with both banks expected to keep rates on hold.

Among other stocks, Phoenix Group topped the STOXX 600 after the British insurer reported a bigger-than-expected rise in full-year adjusted operating profit and total cash.

Qinetiq Group sank over 20% to the bottom of the benchmark STOXX index, marking its biggest-ever loss after the defence company warned of delays in several UK and U.S. contracts that would affect its revenue for fiscal 2025.

(Reporting by Nikhil Sharma and Purvi Agarwal; Editing by Eileen Soreng, Maju Samuel and Rod Nickel)