By Shreyashi Sanyal

(Reuters) – European shares rose on Monday, led by economically sensitive cyclical sectors, as sentiment was lifted by hopes of a quicker recovery and multi-billion dollar deals in the region.

The pan-European STOXX 600 index rose 0.4%, adding to gains of 3.5% in the previous session, with technology shares rising 0.9%.

Cyclical sectors including basic resources, banks and chemicals rose between 1% and 1.7%, and were among top gainers on the main index.

Dialog Semiconductor surged 16.2% to the top of the STOXX 600 after Japanese chipmaker Renesas Electronics Corp agreed to buy the Frankfurt-listed chip designer for 4.9 billion euros ($5.89 billion) in cash.

“There are many other European shares which had fallen out of favour for international investors and this (the deal) indicates that global investors particularly American, Japanese or Chinese investors are looking to invest in such names,” said Chris Bailey, European Strategist at Raymond James.

France’s Veolia Environnement SA said it is launching an offer for all of waste and water management company Suez SA, valuing it 11.3 billion euros ($13.59 billion) after dropping efforts to win the backing of the Suez board.

The French firms fell about 1% each.

The rollout of COVID-19 vaccines globally and increased M&A activity have helped reduce recent pessimism around European equities.

“Growth investment opportunities are improving in Europe and so far the fourth quarter earnings season has shown that too,” Bailey said.

Frankfurt shares rose 0.3%, after hitting a record high moments after the open. Data showed German industrial output stagnated in December as lockdowns to contain the COVID-19 pandemic held back the export-oriented manufacturing sector in Europe’s largest economy.

“After stalling in December, we suspect that factory output declined in January… the recovery has been losing momentum as output has approached pre-pandemic levels,” Andrew Kenningham, chief Europe economist at Capital Economics wrote in a client note.

This comes after data last week showed that orders for German-made goods fell more than expected in December, ending a seven-month streak of positive data.

Global markets also started the week on a stronger footing, with investors keeping a close watch on a $1.9 trillion COVID-19 aid package for the United States that is expected to be passed by lawmakers as soon as this month.

(Reporting by Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta and Amy Caren Daniel)