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GSK tumbles as Zantac lawsuits allowed to proceed

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Bond proxies lead sector gains

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STOXX 600 up 0.3%, rises for 3rd straight session

(Updated at 1550 GMT)

By Shristi Achar A and Medha Singh

June 3 (Reuters) - European shares rose for the third

straight session on Monday, led by bond-proxy sectors, as

investors looked to a near certain interest rate cut from the

European Central Bank (ECB) later this week.

The pan-European STOXX 600 ended 0.3% higher on the

first session of June, with Spanish and Italian stocks

leading gains with 0.7% and 0.5% rises, respectively.

The sentiment was upbeat as global factory activity offered

signs of recovery, while softer manufacturing data on the heels

of a weak U.S. inflation print on Friday continued to spur hopes

of interest rate cuts this year by the Federal Reserve.

All eyes are now on the ECB's interest rate decision on

Thursday, where the central bank is expected to cut borrowing

costs by 25 basis points (bps) from record-high levels,

according to a Reuters poll.

"Falling inflation and 18 months of weak economic activity

make the case for the ECB to start cutting rates. But we don't

think it will cut far and fast," BlackRock Investment Institute

said in a note.

"This is not your typical rate cutting cycle. Central

banks are set to keep rates above pre-pandemic levels due to

persistent inflationary pressures - and last week's euro area

inflation data again showed stalling inflation progress."

Market participants anticipate rate cuts owing to the

encouraging signs of easing inflation in the region. However,

the May inflation reading ticking higher has cast doubts on the

number of rate cuts this year.

Euro-zone bond yields fell after data showed factory

activity remained weak in the bloc and shrunk in the U.S. in

May. That helped rate-sensitive real estate, telecoms

and utilities, often considered as bond proxies,

to lead sectoral gains.

Energy stocks were in a weak spot, slipping 0.7%,

tracking a dip in oil prices.

Among other stocks, British drugmaker GSK tumbled

9.2% after a Delaware judge allowed more than 70,000 lawsuits

over discontinued heartburn drug Zantac to go forward. The stock

weighed on the healthcare sector, sending it 0.3% lower.

Atos shed 18% as the distressed IT consulting firm

gave itself until Wednesday to choose between two revised

restructuring proposals that would dilute its current

shareholders to almost nothing and massively cut its debt

burden.