European shares rebounded from six-month lows on Monday as jitters over a sudden spike in volatility that wiped off $1 trillion in market capitalisation last week appeared to ease. Broad-based gains helped the pan-European STOXX 600 index close 1.2 percent higher, after ending on Friday at its lowest level since August. The UK's FTSE and Germany's DAX rose 1.2 and 1.5 percent respectively.
The euro zone volatility index fell back from peaks hit last week when a spike in inflation expectations boosted bond yields and fuelled worries over central bank tightening. "We see this as a short-term correction rather than an end of cycle event," UBS strategists led by Nick Nelson said.
"What could change that would be a significant move up in bond yields, well above current levels, combined with major inflation fears," they wrote, noting however that fundamentals for European equities remained supportive. The STOXX is down 4.1 percent since the beginning of the year.
The cyclicals sectors which had led the sell-off drove the bounce on Monday, with materials stocks among the best-performing sectors, up about 1.9 percent. Miners Glencore, Rio Tinto and BHP all rose between 1.6 and 2.8 percent as copper prices rose from its lowest in nearly two months as the dollar dropped.
In M&A news, TDC surged 13.4 percent after the Danish telecom company urged investors to back a $6.7 billion cash offer from Australia's Macquarie and three Danish pension funds. Elsewhere, upbeat broker notes pushed shares in Victrex and Delivery Hero among the lead ganers of the STOXX, sending their shares up 3.3 and 4.7 percent respectively.
Car maker Renault added 3 percent as the French government said it would back boss Carlos Ghosn's nominee for chief operating officer but wanted an agreement to transform the Renault-Nissan alliance into an "integrated" automotive group. Akzo Nobel rose 1.9 percent after a source-based Financial Times report said that US private equity giant Apollo had teamed up with the biggest Dutch pension fund to buy the group's 10 billion-euro speciality chemicals unit. Heineken fell 2 percent after the world's second largest brewer lowered its margin growth target, blaming a volatile market environment and an acquisition in Brazil. SES fell 10.7 percent after it announced it would replace its CEO and CFO shortly before reporting its results.
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