Europe's STOXX 600 treads water at start of data-intensive week; Germany stocks notch record close

STOXX 600 flat

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UK's Rightmove jumps on potential takeover bid from Australia's REA Group

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Morgan Stanley turns more positive on property stocks

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Rolls-Royce falls after Cathay Pacific says identifies engine part failure

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Volkswagen rises, co flags potential plant closures

Sept 2 (Reuters) - European shares were little changed on Monday, as investors analysed economic data for clues on the European Central bank's policy trajectory, while Germany's DAX index hit a record close, even as populist wins in state elections injected uncertainty.

The pan-European STOXX 600 index was little changed at 524.94 points, still hovering around its record highs touched last week after data showed euro zone inflation fell to its slowest pace in three years.

Meanwhile, German stocks rose 0.1% to close at a record high of 18,930.85. That occurred even as state elections saw wins for the far-right Alternative for Germany (AfD) and leftist populist Sahra Wagenknecht Alliance (BSW), a heavy blow for Chancellor Olaf Scholz's already fragile ruling coalition.

"(German state elections) are partly a loud political wake-up call before the parliamentary elections in September next year ... that Germany and France – the European Union's leading duo – are moving towards growing political instability and weakness should worry the entire EU," analysts at SEB wrote in a note.

On the economic front, a survey showed that the downturn in Germany's manufacturing sector continued to gather pace in August. For the euro zone, manufacturing activity remained mired in contraction in August, with demand slipping at its sharpest pace this year.

Money markets have almost fully priced in a 25 basis-point rate cut by the ECB on Sept. 12, according to LSEG data.

However, ECB policymakers are increasingly at odds on the outlook for growth, with some fearing a recession and others focusing on lingering inflation pressures, sources close to the debate said.

The rate-sensitive real estate sector was the biggest sector gainer on the STOXX 600, rising 1.8% to its highest since February 2023. Morgan Stanley raised its view of European property firms to "attractive."

However, the aerospace and defence sector slumped over 2.4%, its worst day in two months, weighed down by shares of Rolls-Royce.

The British company, the sole engine provider for Airbus' A350 jetliner, slumped 6.5% in its worst day since May 2023 after Cathay Pacific Airways said it had started a fleet-wide inspection of its A350 aircraft after identifying an engine component failure. Airbus shares fell 1.4%.

Among other individual movers, shares of Volkswagen rose 1.7% after the company said it was considering closing factories in Germany for the first time.

Rightmove jumped 27% after REA Group, the property listings company majority-owned by News Corp, said it was considering buying the British firm.

More economic data from the region, speeches from ECB officials and U.S. payrolls data on Friday will be closely watched throughout the week. (Reporting by Shubham Batra and Lisa Mattackal in Bengaluru; Editing by Nivedita Bhattacharjee, Sonia Cheema and Sharon Singleton)