European shares rise as commerzbank climbs on UniCredit bid; defence stocks up

European shares slip as Mideast conflict enters third week; Commerzbank climbs

Market Overview and Key Developments

By Avinash P

March 16 (Reuters) - Europe's STOXX 600 edged lower on Monday, as the economic fallout from the Middle East war weighed, while Commerzbank rose after UniCredit launched a bid for an additional stake in the German lender.

Banking Sector Movements

Commerzbank shares advanced 1.4%, among the top gainers, while Italian bank UniCredit slipped 2.2%.    

UniCredit said it does not expect to take control of the lender in which it already holds a 26% equity stake and an additional 4% through total return swap contracts.

STOXX 600 Performance

The pan-European benchmark STOXX 600 was down 0.3% at 593.58 points, as of 0931 GMT, set for its fourth session of decline. 

The index has dropped more than 6% from a record high hit in February, before the outbreak of U.S.-Israeli war on Iran.

Impact of Middle East Conflict

With Iranian actions constraining traffic through the Strait of Hormuz, a key conduit for around one‑fifth of global oil and liquefied natural gas, they pose a significant risk to the global economy and roiling markets.

Central Bank Policies and Economic Outlook

Central banks are in focus this week, with Europe among those expected to pause further rate cuts at meetings held for the first time since the war began.

"Given that the conflict is only two weeks old, policy will be on hold, and therefore the focus will be on updated economic forecasts from the Federal Reserve and from the European Central Bank," said Jeremy Batstone-Carr, European strategist at Raymond James.

Supply concerns have driven crude prices higher, and sustained elevated prices could weigh on Europe’s import-dependent economy by adding to inflation pressures while growth remains sluggish.

"More particularly, the market's focus will be on the accompanying statement and the tenor of the press conferences undertaken by (Fed Chair) Jerome Powell and (ECB) President Lagarde and (Bank of England Governor) Andrew Bailey," Batstone-Carr said.

Sector Performance

The banking sector extended its three-week slump with a 0.6% decline on Monday, weighing heavily on the European benchmark.

On the flip side, the broader energy added 0.8% with majors Shell and BP adding 1.4% each, as oil prices remained above $100 a barrel.

Other Market Movers

Separately, Goldman Sachs raised its target for Britain's FTSE 100 for the next 12 months to 10,800 points from 10,400 points.

Among other moves, Italian hearing aid group Amplifon shares declined 10.3% after they announced plans to buy Denmark's GN Store Nord's hearing business for 2.3 billion euros ($2.6 billion).

Carlsberg added 1.4% after Berenberg upgraded Danish brewer to "buy" from "hold".

Geopolitical Developments

Later in the day, European Union foreign ministers will meet to discuss strengthening a small naval mission in the Middle East, but are not expected to decide on extending its role to the choked-off Strait of Hormuz, diplomats and officials say.

(Reporting by Avinash P in Bengaluru; Editing by Sherry Jacob-Phillips)