Europe close: Stocks extend bear market rally

European shares extended gains on Monday, taking their cues from a positive session in Asia, as investors eyed a European Central Bank policy meeting on Thursday and Moscow's decision that same day as to whether to restart gas exports through the Nordstream 1 pipeline.

"This bounce has all the characteristics of a bear market rally, surging for a time before wilting, but for now the buyers have the upper hand," said IG chief market analyst Chris Beauchamp.

"The potential for a severe disruption to European gas supplies is the major headache right now, although it is far from clear why Russia would play this card and leave itself out of options to influence European governments."

The pan-European Stoxx 600 index added 0.93% to 417.63 with all major regional bourses higher.

Germany's Dax meanwhile put on 0.74% to 12,959.81 while the FTSE Mibtel gained 1.13% to 21,169.12.

Also buoying sentiment were stronger-than-expected results out of US investment banking heavyweight Goldman Sachs.

Shares in BP and Shell rose on the back of higher oil prices, which rebounded after a sharp drop last week amid fears of a global recession and softer demand.

"A weaker US dollar combined with risk-on sentiment which is lifting global equities are also supporting more bullish price action to start the week for oil with WTI and Brent crude straddling the psychological $100 a barrel level,” chipped in Victoria Scholar, head of investment at Interactive Investor.

Euro/dollar bounced 0.90% to 1.0171.

Investors were also expecting a 25 basis point rise in rates when the ECB meets later in the week, although on 14 July BofA's Michael Hartnett told clients that absent a 50bp hike from the ECB the single currency would "tank".

In other equity news, UK motor insurer Direct Line plunged 11% as the company lowered its profit outlook, citing a volatile market.

The company revised its combined operating ratio target range to 96% to 98% from a previous 93% to 95% outlined in May. A ratio closer to 100% indicates reduced profitability.

Sector peer Admiral also fell on the news. Both stocks were also downgraded by Jefferies.

The Stoxx 600's sector index for Basic Resources climbed 3.0% as Chinese regulators urged the country's lenders to step up on loans to developers so they could finish housing projects.

Haleon shares made their debut on the London Stock Exchange as a result of its demerger from GlaxoSmithKline, with investors receiving one Haleon share per one share of the parent company. Haleon shares closed at 308.35p on their first day of trading while GSK slipped 0.11%.

The newly-formed company was the result of a merger of the consumer health divisions of GSK, Pfizer and Novartis which boasts a portfolio including Panadol and Sensodyne.