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Defence stocks, car makers lead gains on STOXX 600

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Thyssenkrupp rises after report of shareholder meeting

plans

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STOXX 600 up 1%, its biggest one-day gain in two weeks

(Updates after markets close)

By Nikhil Sharma and Purvi Agarwal

May 26 (Reuters) - European shares kicked off the week

on a positive note on Monday, recouping the previous session's

losses, as markets heaved a sigh of relief after U.S. President

Donald Trump delayed his threat to impose a 50% tariff on the

region.

The pan-European STOXX 600 index closed 1% higher.

It had lost 0.9% on Friday after Trump unexpectedly called for

sharp tariffs on goods from the European Union, saying that

negotiations with the region were not moving fast enough.

On Sunday, Trump extended the deadline for tariffs to July 9

from June 1, after European Commission President Ursula von der

Leyen said the 27-nation bloc needed more time to produce a

deal.

The automobiles and parts index, sensitive to

tariff-related pressures, led broader gains with a 1.8% rise.

However, they were limited by a 3.3% decline in Porsche

.

Defence companies were among the biggest boosts to the STOXX

600 index, with Rheinmetall and Leonardo

gaining over 3% each and the aerospace and defence index

advancing 1.7%.

The stocks also pulled up the industrial goods and services

sector by 1.5%.

The defence and auto sectors helped German stocks

rise by 1.7%, near a record high.

Luxury stocks, highly exposed to the U.S. market, also

gained. Shares of Kering, LVMH and Richemont

rose about 1% each, as did the broader index

"While more time for EU-U.S. negotiations is good news, the

speed of the rebound in stocks suggests that investors may have

become too optimistic on the path for trade discussions," said

Mark Haefele, chief investment officer at UBS Global Wealth

Management.

The euro jumped along with other risk-sensitive currencies,

while euro zone government bond yields were little changed, as

Trump backtracked from his tariff threats.

Rising concerns about the U.S. economic slowdown and fiscal

woes, underscored by Moody's credit rating downgrade on May 16,

are pushing investors to limit their exposure to U.S. assets.

"If you want to have a low-risk portfolio, the U.S. is where

you would go first, but with the trade tensions and geopolitical

tensions, this favourable sentiment has shifted," said Ipek

Ozkardeskaya, a senior market analyst at Swissquote Bank.

Trading volumes were lighter than usual due to public

holidays in the U.S. and the UK markets. However, U.S. stock

futures were up more than 1% each.

Thyssenkrupp jumped 8.8% after a weekend report

said the submarine and car parts maker plans to hold a

shareholder meeting on August 8 to approve an expected spin-off

of its warship division. Thyssenkrupp was not immediately

available for comment.

Zealand Pharma topped the STOXX 600 with a 10%

advance.