By Ankika Biswas and Bansari Mayur Kamdar
(Reuters) -European shares rose in a broad-based rally on Monday, with investors awaiting data this week for clarity on the economic outlook as major central banks advocate tight monetary policy.
The pan-European STOXX 600 closed 0.8% higher, after clocking its steepest single-day decline in three weeks on Friday, with a drop of 1%.
The fall followed remarks from U.S. Federal Reserve Chair Jerome Powell that tempered investor confidence in the notion that interest rates have reached a peak.
Their focus now lies on key inflation data, including that of the U.S. and the euro zone, through the week.
"Markets are getting the feeling the Fed is good being data dependent. They want to see the impact of previous rate hikes on the economy, the full extent of which will take a while to see," said Daniela Hathorn, senior market analyst at Capital.com.
Investors are also eyeing U.S. President Joe Biden's meeting with Chinese President Xi Jinping this week during the Asia-Pacific Economic Cooperation summit in San Francisco.
"Just the fact those lines of communication continue to be open brings a vibe of positivity and if we do see some significant headlines coming out of that, more focus will turn towards it," Hathorn added.
Markets appeared to look past the risk of a U.S. government shutdown ahead of an end-of-week deadline for funding and Moody's (NYSE:MCO) cutting its outlook on the U.S. credit rating to "negative" from "stable".
Meanwhile, Italian banks rallied 2.8%, with Monte dei Paschi (MPS) jumping 8.6% after Fitch on Friday upgraded it to "BB" with a stable outlook and Deutsche Bank raised its rating to "buy" from "hold" on Monday.
Energy stocks rose 1.3%, as Siemens Energy climbed 6.0% to lead gains after sources said it will present a deal for billions of euros in project-related guarantees backed by the German government on Wednesday.
Novo Nordisk (NYSE:NVO) cut some of its early gains and was last up 0.3%, after data showed heart-protective benefits of its widely popular Wegovy obesity treatment are due to more than weight loss alone.
Phoenix Group climbed 5.7% after raising its full-year cash generation forecast, while British Land gained 1.8% after the property firm said it expects annual rental growth at the top end of its previous forecast range.
Debt-laden Swedish property group SBB lost 8.4% as its quarterly pre-tax loss widened.
Meanwhile, Portugal's premier Antonio Costa, who resigned recently, told foreign investors the country was open for business and wanted to remain attractive despite an ongoing probe into green energy projects.
The country's PSI 20 index closed 0.8% up after losing nearly 2.4% last week.