European stocks gain as traders await EU developments

European banking stocks gained more ground on Monday trade, helping to push the FTSE higher by 0.5%, whilst the German DAX and French CAC indices both saw stronger gains of over 1%.

The FTSE 350 banks and insurance sectors were the standout gainers in early trade in London, with Lloyds Banking Group and Royal Bank of Scotland shares the top performing stocks on the FTSE 100, rallying over 5%. The gains for banking stocks today come off the back of a best weekly performance for banking stocks In 32 months.

However, whilst the upward momentum being built behind the FTSE 100’s charge over the past week is strong and very positive, given the fact that there is such a huge weight of expectation towards the week’s EU Summit and an expected rate cut from the ECB, gains could be susceptible to profit taking and the headlines out of the euro area.

Today, investors are keeping a strong eye on talks between Angela Merkel and Nicolas Sarkozy, as the two European figure heads discuss new measures to include a potential EU Treaty change they could propose at the week’s EU Summit that seeks to bring about greater fiscal union and stricter oversight measures to ensure that member states do not get into the similar types of troubles like that of Greece, Ireland or Portugal. Investors are likely to remain highly sensitive to any detail that emerges of what was discussed and potentially agreed. In this sense, the markets and financial stocks in particular are likely to be ‘headline driven’ this week.

Joining Lloyds and RBS in being strong gainers on the day were shares of Cairn Energy after the oil firm received clearance to sell a $6 a billion majority stake in its Indian business to Vedanta Resources, marking an end to months of uncertainty as to whether the deal would seek the necessary approval and proceed as planned. Both Cairn and Vedanta have recently announced expectations that the deal would go ahead and so whilst the approval from the Indian interior ministry today may not necessarily be a surprise, it is a welcome relief for shareholders and this has supported Cairn Energy’s share price today, which rallied by 2%.

Shares in recruiter Michael Page however slumped 12% on the day after the firm warned that its full-year profits would be towards the bottom end of market consensus. The firm admitted that headwinds from the European financial crisis had impacted its earnings and this has triggered several brokers into downgrading their price targets on the company’s share price this morning. Michael Page shares hit its lowest point since late 2009 in reaction to the profit warning.