European shares pause after rally; easyJet soars on take-private bid

Europe's benchmark STOXX 600 index was pinned at a record high on Monday after a strong week, with investors focussing on new deals, especially the take-private offer for UK's easyJet.

The pan-European index .STOXX inched up 0.1% to 654 points as of 0826 GMT, after posting its strongest weekly performance since mid-May on Friday.

Last week's gains were largely aided by cyclical sectors such as industrials .SXNP and banks .SX7E as the market rally broadened beyond tech stocks, while easing Middle East tensions aided risk taking. Focus will now be on the conflict's repercussions on second-quarter earnings.

"The upcoming earnings season should be a test for the AI theme and likely shape the market performance over the coming months," said Mohit Kumar, an economist at Jefferies.

"There have been concerns about excess capacity and whether AI capex can deliver the expected returns. We are optimistic on the earning season. Capex remains strong and as long as money continues to flow, AI related sectors should remain well-supported."

Among top movers in Europe, easyJet EZJ.L jumped 10% after the British budget airline agreed in principle to a sweetened takeover offer from U.S. investment firm Castlelake, valuing the carrier at up to £5.5 billion ($7.34 billion).

Defence stocks were among top sectoral gainers .SXPARO, up 1.3%, as Russia's conflict with Ukraine showed no signs of easing. Investors bought defence shares on expectations that simmering geopolitical tensions would aid the sector.

Exail EXA.PA rose 2.1% after Thales TCFP.PAreached an agreement to buy the Gorgé family's controlling stake in the drone technology company.

On the data front, investors will assess euro zone retail sales and producer prices data due later in the day, along with a report on German industrial orders in May.

Traders anticipate the European Central Bank will hike interest rates by at least 25 basis points later this year, LSEG-compiled data showed, to combat price pressures due to the Iran war.

Among others, Airbus <AIR.PA> gained 1.3%. Industry sources said the airline has set an internal goal of 900 deliveries this year after handing over 89 jets in June, while keeping its official full-year guidance of 870 deliveries unchanged.

Ferrari RACE.MI advanced 2.8% after the luxury racecar maker launched a limited-edition 12-cylinder model with a manual gearbox. The company unveiling its first electric vehicle earlier this year had sent its shares reeling.

J.P. Morgan upgraded Greece to "overweight" from "neutral", citing expected inflows of about $1 billion from the inclusion of certain Greek shares on the STOXX index later this year.

-Reporting by Johann M Cherian and Tharuniyaa Lakshmi in Bengaluru; Editing by Harikrishnan Nair and Mrigank Dhaniwala/Reuters