By Susan Mathew and Agamoni Ghosh
(Reuters) - European shares closed marginally higher on Monday led by gains for Banco Santander (MC:SAN), as investors chose to focus on the positives of a weekend win for Prime Minister Pedro Sanchez's ruling socialists in Spain's third election in four years.
The pan-European STOXX 600 index closed 0.08 percent stronger, with most regional indices ending in positive territory.
Spain's IBEX, down nearly 1 percent earlier in the session, finished up 0.12 percent as losses for utilities were outweighed by the rally in the shares of the country's major lenders.
Sanchez's pro-European PSOE won Sunday's election, but was short of a parliamentary majority, meaning it will need the help of regional parties, or the centre-right, to form a coalition government.
"It looks like we are going to be able to continue with a government under PSOE," said Bert Colijn, a euro zone-focused senior economist at ING.
"I would say it's quite a positive story. I think that in general being pro-European is good for reform and policy and his being pro-euro zone would help markets."
Jitters around the result of the poll, added to weak euro zone economic sentiment data, had pushed markets lower in morning trade in Europe.
But the gains for Santander, leading banks across Europe higher, along with a dip in Spanish bond market yields, pointed to a more positive take on the events from investors.
Europe's banking sector index rose almost 1 percent, with HSBC, Intesa Sanpaolo (MI:ISP) and BNP Paribas (PA:BNPP) all among the top ten boosts to the broader STOXX 600 index.
French drugmaker Sanofi (PA:SASY) also rose 1.7 percent after positive U.S. and European regulator decisions on cholesterol and diabetes drugs co-developed by the company.
Airbus gained 0.95 percent as Middle East carrier Flydubai's chairman said the airline could order Airbus A320neos as replacements for Boeing (NYSE:BA) 737 MAX jets.
A fall in German drug-maker Bayer (DE:BAYGN), as well as oil majors tracking a decline in crude prices, kept gains in check.
Bayer shares, which were trading ex-dividend, fell as a majority of shareholders rejected the management's actions on Friday, fuelling market talk the company could become a takeover target.
About 30 billion euros have been wiped off Bayer's market value since August, when a U.S. jury found it liable because Monsanto (NYSE:MON), which the company finished taking over last year, had not warned of alleged cancer risks linked to its weedkiller Roundup.
Market participants will watch out for a meeting of the U.S. Federal Reserve and Chinese factory data this week for further clues on policy direction in the world's largest economies.