By Sruthi Shankar and Ambar Warrick

(Reuters) – European stocks ended higher on Monday after bond markets stabilized from a sharp selloff last week, with travel and leisure stocks leading gains on optimism over COVID-19 vaccination programmes and a large U.S. stimulus package.

The pan-regional STOXX 600 index rose 1.8%, its best day since early November, after losing more than 2% last week. Travel and leisure stocks added more than 3%.

Data also showed manufacturing activity picked up pace in major euro zone economies in February, inspiring some confidence about an economic recovery this year, while a separate reading showed German inflation held steady in the month.

European stocks had retreated from one-year highs last week as the possibility of rising inflation and higher bond yields fuelled concerns over monetary policy tightening by central banks.

Accommodative policies and bumper stimulus measures have enabled stocks to recover from pandemic-driven lows last year.

Global stocks rallied on Monday tracking a pullback in yields, while the rollout of a third COVID-19 vaccine in the United States, along with progress towards a $1.9 trillion stimulus package, also boosted sentiment. [MKTS/GLOB]

“Equities should prove resilient, but the recent pick-up in real yields deserves to be watched. It is more toxic for highly valued risk assets, including growth stocks,” analysts at Generali Investments wrote in a note.

Overall, the analysts said they maintained “a moderate pro-risk tilt”, with potential pullback in stocks providing buying opportunities as economies look to re-open.

British stocks rose in anticipation of Finance Minister Rishi Sunak announcing more borrowing on top of his almost 300 billion pounds ($418 billion) of COVID-19 spending and tax cuts in a budget statement on Wednesday.

Homebuilders such as Persimmon, Taylor Wimpey and Barratt Developments were the top gainers on the FTSE 100.

Among other movers, Spanish travel booking group Amadeus topped the STOXX 600 as expectations of a 2021 recovery in travel demand drove a slew of price target hikes by major brokerages.

British Airways-owner IAG also jumped 7% on similar upgrades.

French food group Danone rose 1.4% after it said it was taking a first step toward selling its stake in its Chinese dairy partner Mengniu Dairy, and would use the gains to buy back its own shares.

Swiss-listed shares of computer goods maker Logitech International rose 1.6% after it raised its sales growth forecast to about 63% for fiscal 2021, up from the 57-60% range it previously expected.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D’Silva)