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(Alliance News) - European stocks climbed on Monday, with defence stocks to the fore, as leaders assembled in Paris to consider their response to events in Ukraine.
The FTSE 100 index closed up 35.55 points, 0.4%, at 8,768.01. The FTSE 250 ended up 25.67 points, 0.1%, at 20,938.68, but the AIM All-Share closed down 0.84 of a point, 0.1%, at 725.22.
The Cboe UK 100 ended up 0.5% at 879.70, the Cboe UK 250 closed down 0.1% at 18,269.74, while the Cboe Small Companies ended down 0.6% at 16,125.94.
In European equities on Monday, the CAC 40 in Paris ended up 0.2%, while the DAX 40 in Frankfurt jumped 1.3%. It had earlier reached a new high of 22,802.24.
US financial markets are closed for Washington's Birthday.
Defence stocks rose sharply in Europe on Monday on expectations spending will be ramped up to bolster security in the aftermath of any peace deal in Ukraine.
BAE Systems and Rolls-Royce were up 9.0% and 0.9% in London, Rheinmetall up 14% in Frankfurt, and Leonardo up 8.1% in Milan.
On Friday, European Commission President Ursula von der Leyen said: "Let there be no room for any doubt. I believe that when it comes to European security, Europe has to do more...We need a surge in European defence spending. Currently the EU27 are spending around 2% of GDP on defence...but we will need to increase that number considerably once again. Because from just below 2% to above 3% will mean hundreds of billions of more investment every year. So, we need a bold approach."
Von der Leyen said that the European Commission will exempt defence from EU government spending limits.
"This will allow member states to substantially increase their defence expenditure," she said.
Citi analyst Sam Burgess said: "It is too early to translate such statements into quantifiable spending increases, nevertheless, it is increasingly clear that senior European leaders are acknowledging the post-Cold War European defence paradigm is over."
JPMorgan said it is not a surprise that multiple senior European political figures have called for higher defence spending.
The bank argues that European defence spending must and will increase in the next four years at least due to a few factors. These include a geopolitical environment that is completely different to the last 30 years; the need to rebuild military capability after [around] 30 years of underinvestment; and the current US government being unwilling to subsidise Europe's security.
"In short, we are in a completely new era for European defence spending; we remain very bullish on the European defence sector" as an equity investment, JPMorgan added.
US President Donald Trump sidelined Kyiv and its European backers last week when he called his Russian counterpart Vladimir Putin to talk about starting negotiations to end the conflict.
The hastily convened Paris informal summit of European leaders which started late Monday afternoon comes after Trump said he could meet Putin "very soon".
The Paris talks come as Washington said Secretary of State Marco Rubio, National Security Advisor Mike Waltz and Special Envoy Steve Witkoff would on Tuesday meet with a Russian delegation including Foreign Minister Sergei Lavrov in Riyadh ahead of a future meeting between Trump and Putin in the Saudi capital.
Rubio had earlier sought to play down expectations of any breakthrough at upcoming talks with Russian officials.
"A process towards peace is not a one-meeting thing," he told the CBS network.
Hosted by President Emmanuel Macron at the Elysee palace, the European meeting will gather the leaders of France, Germany, Britain, Italy, Poland, Spain, the Netherlands and Denmark, as well as the heads of the European Council, the European Commission and NATO.
The pound was quoted at USD1.2613 at the London equities close Monday, little changed compared to USD1.2612 at the close on Friday.
The euro stood lower at USD1.0482 at the European equities close Monday, against USD1.0505 at the same time on Friday.
Against the yen, the dollar was trading lower at JPY151.41 compared to JPY152.97 late Friday.
Elsewhere, Lloyds Banking Group fell 0.3% as Shore Capital banking analyst Gary Greenwood said he understood that the Treasury's application to intervene in the Supreme Court's review of the Court of Appeal's rulings in motor finance has been refused.
However, he said the Financial Conduct Authority's application to intervene has been granted.
Other car finance providers fell. Close Brothers fell 8.1%, Secure Trust fell 8.5% and Vanquis Banking fell 6.6%.
Greenwood said the news that the HMT application has been rejected may come as a "disappointment" to the market.
"Ultimately, the situation and potential outcome remains subject to significant uncertainty and, although the mood music had arguably been improving, this news highlights that the process will be far from straightforward in its resolution."
Car finance providers are facing costs from investigations into the potential mis-selling of finance.
On the FTSE 250, Ferrexpo jumped 13% on hopes grow that a peace deal can by struck in Ukraine.
"War fatigue on both sides and international efforts to secure an end to conflict suggests ramp-up scenarios are increasingly worth considering, with short-term upside to 245p if a ceasefire is quick to implement," analysts at Peel Hunt said.
Assura rose 9.0% after it emerged that the firm had rejected four bid proposals from Kohlberg Kravis Roberts.
The New York-based private equity firm said it is now considering if there is any "merit" in engaging with the Cheshire, England-based care property investor's board.
KKR said the latest proposal was 48 pence per share in cash, valuing all of Assura's equity at GBP1.56 billion, a 28% premium to its Friday closing price.
For its part, Assura said it is confident in the long-term prospects of the company and believes that Assura is strongly positioned to create value for shareholders.
But it was another bleak day for investors in John Wood, which fell a further 11%, after plummeting 56% on Friday.
On Friday, the firm said it was making further costs cuts and reviewing its funding position amid weaker-than-expected trading and legacy contract issues.
Brent oil was quoted at USD74.98 a barrel at the London equities close on Monday, up from USD74.75 late Friday.
Gold was quoted higher at USD2,898.96 an ounce at the London equities close on Monday against USD2,893.73 at the close on Friday.
Morgan Stanley said gold's increase closer to the psychological USD3,000 level has brought the metal's rise once again into sharp focus.
"While we still see several positive drivers at work, price moves are becoming increasingly difficult to explain with longer term regression models," it added.
Nonetheless, the broker thinks ongoing tariff uncertainty could take near-term prices a bit higher, likely surpassing USD3,000 per ounce, but not all the way to its bull case of around USD3,400.
"Further demand destruction and supply response from recycling and potential profit taking suggests prices could end 2025 lower than they are today; we forecast USD2,700 per ounce by [the fourth quarter]" Morgan Stanley added.
The broker said the pace of central bank gold buying remains "critical" to the outlook.
"We remain watchful of any slowing in central bank demand that may arise in the event of a potential Russia/Ukraine peace deal," it added.
In Tuesday's UK corporate calendar, miner Antofagasta reports full-year results.
The economic calendar for Tuesday sees an interest rate decision in Australia overnight, UK unemployment and average earnings data at 0700 GMT and Canadian inflation figures at 1330 GMT.
By Jeremy Cutler, Alliance News reporter
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