LONDON: European shares gained on Monday, led by automakers and defensive sectors, as hopes for a peace deal between Russia and Ukraine boosted sentiment, while a drop in crude prices pressured oil stocks.

The pan-European STOXX 600 index firmed 0.1%.

The benchmark is about 8% away from its all-time high hit in early January.

“Bond markets (are) being seen as somewhat toxic for investors at the moment, and high rates of inflation make cash toxic too, so there is little choice but to invest in equities for now - and working in favour is that dividends ought to grow over time with inflation,” said Stuart Cole, head macro economist at Equiti Capital.

European automakers and cyclical sectors including utilities and construction stocks led gains.

The sell-off in euro zone bond markets showed no sign of slowing, with traders pricing in as many as four European Central Bank interest rate hikes within a year.

“(The ECB) is being seen as potentially opting for a softer path of monetary tightening than Fed Chair Powell has suggested for the US, which is boosting equities...but the overall climate remains incredibly uncertain,” Cole added.

Ukraine and Russia were preparing on Monday for the first face-to-face peace talks in more than two weeks, but a senior US official said Russian President Vladimir Putin did not appear ready to make compromises to end the war.

Meanwhile, oil prices tumbled more than $9 a barrel after financial hub Shanghai launched a two-stage lockdown to contain a surge in COVID-19 infections. Oil stocks plunged 2.1% to record their worst session in nearly four weeks.

Credit rating agency S&P Global cut its euro zone growth forecast for the year to 3.3% from 4.4% previously, saying higher energy prices caused by the war would hit households’ spending power.

German chemicals giant BASF gained 1.6% after HSBC upgraded the stock to “buy”, saying “resilient demand” will likely help first-quarter earnings.

French utility EDF slipped 0.3% after saying it would have to announce new delays and cost overruns for its Hinkley Point C nuclear plant project due to the Ukraine conflict, supply chain disruption and inflation, among other reasons.

British lender Barclays fell 4.1% after disclosing around a 450 million pound ($591.80 million) loss on mishandled structured products.

Carlsberg rose 3.5% after the Danish brewer announced it would exit Russia along with brewing giant Heineken, joining an exodus of Western companies as pressure grows on Moscow following its invasion of Ukraine.