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STOXX 600 up 0.2%

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Euro zone PMI at 48.9 in September

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Commerzbank falls as German government retains 12% stake

(Updated at 0823 GMT)

By Pranav Kashyap

Sept 23 (Reuters) - European shares edged higher on

Monday, though gains were capped by caution as investors tread

carefully in anticipation of a wave of crucial economic data

from the region this week.

The pan-European STOXX 600 index was up 0.2% at

515.5 points. The benchmark posted its worst day in more than a

month on Friday.

Business activity in the euro zone contracted unexpectedly

in September, according to data released earlier in the day. The

bloc's PMI sank to 48.9 from 51 in August.

The downturn appeared broadbased with Germany, Europe's

largest economy, seeing its decline deepen while France - the

currency union's second biggest - returned to contraction

following August's Olympics boost.

Germany's DAX edged 0.3% higher after PMI figures

showed that business activity contracted in September at its

sharpest pace in seven months.

France's CAC 40 lost 0.3% after data signalled its

services sector contracted sharply in September.

British flash PMI figures for September are expected at 0830

GMT.

Board members from the European Central Bank are set to

speak through the week, with Frank Elderson and Piero Cipollone

speaking later in the day.

The euphoria from the U.S. Federal Reserve's jumbo rate cut,

which had sparked a market rally globally, is fading as

investors shift their focus to potential further cuts.

Attention is on the core personal consumption expenditures

(PCE) index, the Fed's preferred inflation measure, due on

Friday. This data will indicate if more rate adjustments are

imminent.

"The number of cuts is not the main risk to equities. It is

a much weaker growth," Lilian Chovin, head of asset allocation

at Coutts said.

"What's next for European equities - you want to start

seeing an uplift in earnings, which haven't been very strong."

The Swiss National Bank is expected to cut rates by a

quarter point on Thursday, while Sweden's central bank is

anticipated to ease by 25 basis points on Wednesday.

Among individual stock moves, HSBC Holdings ( HSBC ) rose

1.1% after BNP Paribas signed a deal to buy the

lender's private banking unit in Germany.

Shares of Germany's Commerzbank fell 4.4% as the

government said it would retain its 12% stake in the lender,

that will likely keep any merger with Italy's UniCredit

on hold.

The banking sector lost 1.1%.

AstraZeneca ( AZN ) dropped 1% after its experimental

precision drug developed with Daiichi Sankyo ( DSKYF ) did not

significantly improve overall survival for patients with a type

of breast cancer in a late-stage trial.

China's central bank lowering its 14-day repo rate by 10

basis points is also acting as a slight tailwind for Europe

stocks.

"There are rumours that there's going to be more stimulus in

the coming days. That is what could really help support activity

in China and manufacturing activity and the stock markets in

Europe," Coutts' Chovin said.