China rally triggers gains in European cyclical stocks

(Reuters) - European shares headed towards a one-month high on Monday, with a rally in China’s markets setting an upbeat tone as investors banked on the world’s second biggest economy to lead a recovery from the coronavirus-induced slump.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, July 6, 2020. REUTERS/Staff

The pan-European STOXX 600 .STOXX climbed 1.6%, as stocks exposed to China, including carmakers .SXAP, industrials .SXNP, energy firms .SXEP and luxury goods makers, gained strongly.

The German DAX .GDAXI, London's FTSE 100 .FTSE and France's CAC 40 .FCHI all rose about 2%.

China's blue-chip index .CSI300 jumped over 5%, as investors stocked up on cheap funding to invest in an economy that analysts predict will recover faster and better than other major countries battling new waves of infections. [.SS]

“They (China) were the first to get hit by the virus, and that’s the sort of timeline that other economies in the world can expect for a bounce back,” said Michael Baker, an analyst at ETX Capital in London.

“The only concern is the United States. That’s a spanner in the works.”

In the first four days of July alone, 15 states have reported record increases in new cases of COVID-19, which has infected nearly 3 million Americans and killed about 130,000, according to a Reuters tally.

Optimism from Asia spilled over to European trading session, with HSBC HSBA.L, Banco Santander SAN.MC, BNP Paribas BNPP.PA offering the biggest boost to the STOXX 600.

Europe's battered banking index .SX7P jumped 4%, touching its highest level since June 10.

UK homebuilders Persimmon PSN.L, Taylor Wimpey TW.L and Barratt Developments BDEV.L were the top gainers, surging about 6% after reports that British Finance Minister Rishi Sunak planned to raise a property tax threshold, among other steps to reduce the economic toll of the health crisis. [.L]

Barratt said it was starting the new financial year with “cautious optimism” as its forward order book improved.

Sonova SOON.S, the world's biggest hearing aid maker, rose 5.0% after saying it would close some stores and cut jobs as it expects first-half results to only partially recover from the pandemic hit.

Nordic banking group Nordea NDAFI.HE rose 3.0% after it agreed to buy the occupational and individual pension portfolios from Frende Livsforsikring AS.

Swiss speciality chemicals group Clariant CLN.S slumped 13.6% to the bottom of STOXX 600 on trading ex-dividend.

Reporting by Sruthi Shankar in Bengaluru; editing by Patrick Graham and Sriraj Kalluvila