March 23 (Reuters) - European shares fell to a four-month low on Monday, led by the defense sector, as a spike in crude prices prompted investors to factor in potential inflation pressures with the
European shares recover after Trump's comments spark de-escalation hopes
Market Reaction and Key Developments
By Avinash P, Johann M Cherian and Niket Nishant
March 23 (Reuters) - European shares rebounded on Monday, snapping a three-day losing streak after U.S. President Donald Trump said he would postpone any strikes on Iranian power plants and energy infrastructure following "productive" conversations with Tehran.
The pan-European STOXX 600 rose nearly 0.6% to 576.78points after dropping as much as 2.5% earlier in the session.
Investor Sentiment and Market Sensitivity
"Each day without resolution exerts a slow downward pull on markets, yet the potential for a sharp squeeze higher remains very real if there is even a hint of a credible ceasefire," said John Wyn Evans, head of market analysis at Rathbones.
The mid-session reversal in equities shows how sensitive risk sentiment remains to the U.S.-Israel war against Iran, now in its fourth week, which has eclipsed most other concerns for investors.
Trump said Washington and Tehran had "productive" conversations for "total resolution of hostilities." However, Iran's foreign ministry spokesperson denied any communication with the U.S., keeping traders on edge.
Index Performance and Sector Movements
INDEX RECOVERS, BUT RISKS REMAIN
Regional bourses recovered, with Frankfurt's DAX and Spain's IBEX up over 1% each. Miners, financials and travel and leisure rose 2.6%, 2.6% and 2.5%, respectively.
A 9% drop in Brent futures weighed on energy shares, which lost 1.7% and were the biggest drag on the index.
Energy-price-sensitive airlines also reversed losses with Air France and Lufthansa climbing 3.9% and 3.4%, respectively.
Historical Context and Ongoing Risks
"This is the same type of thing that happened after Liberation Day," said Robert Pavlik, senior portfolio manager at Dakota Wealth, drawing a parallel to the volatile markets nearly a year ago as investors grappled with the lack of clarity on U.S. tariffs.
The continent is particularly vulnerable to energy price swings, considering its reliance on imports via the Strait of Hormuz -- a conduit for one-fifth of the global oil supply that has largely been shut since the war began.
Despite the strong start to the week, the STOXX 600 remains on the cusp of a correction, having fallen about 9% from its record high close in February.
An index is said to have confirmed a correction if it closes 10% below a recent record high close.
Monetary Policy and Corporate Movers
Rate Hike Concerns and Economic Measures
RATE HIKE CONCERNS EASED
Hopes of a de-escalation prompted markets to scale back their bets on rate hikes by the European Central Bank, but brokerages have cautioned that the impact on inflation and economic growth could be felt for months.
Spain proposed fiscal measures to counter the economic impact of higher energy costs.
Notable Stock Performances
Among individual movers, Telecom Italia added 4.7% after postal service Poste Italiane announced it was launching a cash-and-share offer to buy the former phone monopoly for 10.8 billion euros ($12.5 billion). Poste Italiane declined 6.9%.
German company Delivery Hero advanced 7.9% after selling its food delivery business in Taiwan to Grab Holdings for $600 million.
Danish jeweller Pandora's shares jumped 9.2% on lower precious metal prices.
(Reporting by Avinash P, Johann M Cherian and Niket Nishant in Bengaluru; Editing by Nivedita Bhattacharjee, Sahal Muhammed and Maju Samuel)
