By Ankika Biswas and Bansari Mayur Kamdar
(Reuters) -European shares edged higher on Monday after a strong week driven by aggressive bets on interest rate cuts, while drugs-to-pesticides group Bayer (OTC:BAYRY) posted its worst day ever weighing on the healthcare sector and Germany's benchmark index.
The pan-European STOXX 600 inched 0.1% higher after jumping nearly 3% last week.
As investors started pricing in 100-basis-point rate cuts for 2024 with the first one seen as soon as April, European Central Bank officials shunned market optimism, flagging still-high inflation and a somewhat resilient economy.
"Markets are definitely jumping the gun. There's going to be a continuous repricing of expectations about that first rate cut- the most important one because of that shift in mentality from central banks," Daniela Hathorn, senior market analyst at Capital.com.
Energy stocks led sectoral gains, climbing 1.3% tracking firm crude prices as further supply cuts in OPEC+ production are expected in the coming weeks.
The healthcare sector eased 0.4% after Bayer fell 18.0% briefly hitting its lowest level in 14 years after aborting a large late-stage trial testing a new anti-clotting drug.
Separate news that the company had been ordered to pay $1.56 billion in the latest U.S. lawsuit over its commonly used Roundup weedkiller also hurt sentiment.
Germany's DAX slipped 0.1%.
Meanwhile, data from the region showed producer prices fell along expectations in October, continuing a downward trend after September's record fall.
Italian bank stocks gained after Moody's (NYSE:MCO) upgraded the outlook for the country's sovereign debt in an unexpected boost for Prime Minister Giorgia Meloni's government.
The FTSE MIB inched 0.2% up.
The risk premium investors ask to hold Italian and Portuguese sovereign debt also fell, reflecting some relief.
"With Meloni coming into government, we've seen a stable economic landscape from Italy and the Moody's upgrade is a move towards stability in the credit market and will improve the positive sentiment," Hathorn added.
Meanwhile, Spain's IBEX 35 added 0.8%, extending gains for its sixth straight session.
Among other major movers, Ashtead Group (LON:AHT) tanked 10.5% after the British equipment rental firm said it expected annual profit below expectations and a more than $2 billion depreciation charge for the year.
Julius Baer dropped 12.0% after the Swiss bank dampened profit expectations, while Austrian sensor maker AMS Osram lost 4.9% after announcing terms of a fully underwritten rights issue.
Technical products and services provider Diploma topped the benchmark STOXX 600 with an 11.2% rise after projecting an upbeat full-year margin.