Europe close: Stocks pare gains as investors eye ECB meeting

European stocks finished off their highs on Monday but still managed to eek out a positive performance with the Stoxx 600 index rising for the third straight day.

Nervousness ahead of the European Central Bank's upcoming policy meeting on Thursday, after which it is largely expected to cut interest rates from the record-high level of 4%. Economists and traders widely expect a 25 basis point rate cut – the ECB's first since 2019.

It would also mark the first time the ECB has cut rates ahead of the US Federal Reserve in a monetary easing cycle, although optimism around successive rate cuts has waned in recent weeks as persistent 'sticky' inflation in the eurozone pushed policymakers to make more hawkish comments on the future path of monetary easing.

The Stoxx 600 index finished the session up 0.32% at 519.85, with decent gains in Frankfurt, Milan and Madrid partially offset by a flat performance in London and Paris. The benchmark index had started the session around 0.6% higher.

"The morning session for Europe and US futures suggested we might see more gains, but aside from small gains for the Nasdaq 100 Wall Street has failed to make progress, while European markets have given back some of their gains," said Chris Beauchamp, chief market analyst at IG.

Beauchamp said that data showing a contraction in US manufacturing activity and signs of strength in European gas prices gave investors "reason to put their bullishness on hold".

In economic news, revised estimates for manufacturing activity in the eurozone signalled a "turning point" for the sector in May, according to S&P Global and HCOB. The final reading for the eurozone manufacturing PMI showed a reading of 47.3 for last month, up from 45.7 in April. While this was slightly below the preliminary estimate of 47.4 released two weeks ago, it was the highest reading in more than a year.

Elsewhere, the Caixin/S&P Global China manufacturing purchasing managers’ index rose to 51.7 from 51.4 in April, hitting its highest level since June 2022 and coming in ahead of consensus expectations of 51.5.

Market movers

GSK shares were down almost 10% after a US court ruled that jury trials could hear expert witnesses in 70,000 cases brought by cancer sufferers claiming its Zantac heartburn drug caused their condition.

St James's Place was lifted by a JPMorgan Cazenove upgraded to ‘overweight’ from ‘neutral’.

Travel operator TUI was surging 7% after Europe's third-largest tour operator FTI Group filed for insolvency.