EUROPE MARKETS: Europe Stocks Rise As Ukraine Tensions Ease

By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- European stocks were on the upswing Monday, as Russia indicated it will work to ease tensions with Ukraine.

The Stoxx Europe 600 climbed 1.2% to 328.91, cutting into last week's 2.1% slide.

Gains overnight in Asia and on Wall Street on Friday set the tone for European trade following reports that Russia was ending military drills on Ukraine's border.

Mining and industrial stocks were higher in European trade Monday, with iron ore producer Rio Tinto up nearly 2% and Germany's Siemens gaining 1.7%.

Russia's conflict with Ukraine has been a source of pressure for European equities recently, particularly as Western countries issued trading restrictions against Russia as they worked to force Russia to stop aiding pro-Russian separatists in Ukraine.

Russia's MICEX index climbed 1.9%. Shares of Sberbank claimed a 4.2% increase, VTB Bank rose 3.6% and Gazprom picked up 1.4%. Index producer MSCI late Friday said it will keep Sberbank and VTB in its MSCI Russia Index until further notice after consulting with the investment community.

Indexes

Germany's DAX 30 index bounced up 1.8% following last week's drop of 2.2%. Investors have been concerned about the impact of Russian sanctions on the German economy. The DAX last week fell into correction mode, losing 10% of its value after reaching an all-time high in June.

J.P. Morgan Cazenove said Monday the DAX is "now the cheapest market in Europe," at 11.9 times price-to-earnings, and is a "beneficiary of a falling euro and of a pickup in Chinese and U.S. activity".

In Paris, the CAC 40 was up 1% and in London, the U.K. FTSE 100 was pushed higher by 0.8%.

Russian growth

Russian President Vladimir Putin last week hit back with its own sanctions, banning imports of food and other items, on Western countries that restricted its products.

While there have been violent reactions in the markets on geopolitical worries and signs of weakening growth in the euro zone, "[w]e do not see the ingredients for a broad sell-off in global financial markets," said Carmine Grigoli, chief investment strategist at Mizuho Securities, in a note Monday.

"For now, the Russian economy will bear the brunt of escalating tensions with the West, as the combination of broadening sanctions and capital flight is expected to push the economy into recession," he said. "U.S. trade with Russia is miniscule, so the repercussions from the sanctions should be negligible. Eurozone economic growth could be dampened by sanctions."

Russian economic growth slowed to 0.8% in the second quarter versus first-quarter growth of 0.9%.

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