The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February 15, 2022.
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February 15, 2022. Reuters / STAFF

European stocks rose on Monday as investors pinned their hopes on diplomatic efforts by Ukraine and Russia to end weeks-long conflict, while shares in Volkswagen surged after the German carmaker doubled its operating profit.

The pan-European STOXX 600 index gained 1.0%, extending gains from Friday when Russian President Vladimir Putin signalled a positive shift in talks with Ukraine.

Russia and Ukraine gave their most upbeat assessments following weekend negotiations, even as Russia attacked a base near the Polish border and fighting raged elsewhere.

"No sign yet of hostilities in Ukraine easing, but risk assets are beginning to behave as if most of the negativity is now priced in," said Ian Williams, economics & strategy research analyst at Peel Hunt.

Auto stocks climbed 4.1% to lead gains among sectors. Volkswagen AG surged 6.6% as higher prices and a more favourable product mix boosted its operating profit.

However, China-exposed miners, which have outperformed recently, fell 1.8%, as surging COVID-19 infections in the world's top metals consumer fanned worries over economic growth prospects.

Shares of luxury brands such as LVMH and Richemont, which depend on China for a large part of their sales, also declined.

Investors waited for policy decisions from the U.S. Federal Reserve and the Bank of England later this week, with both the central banks expected to raise interest rates.

Banks gained 2.8%, extending a rebound from one-year lows hit last week as investors ramped up expectations of rate hikes to combat soaring inflation.

Hopes of progress in peace talks sent oil prices lower. Oil has surged this month after Western sanctions against Russia over its invasion of Ukraine raised concerns about supply disruptions. [O/R] [MET/L]

French power utility EDF slipped 1.5% after it warned on its 2022 profit outlook, saying that wholesale energy price caps and lower nuclear output problems are likely to impact the group's capability to achieve financial targets.

Dutch tech investor Prosus, which owns a stake in China's Tencent, tumbled 10.6%, reflecting worries over regulatory concerns.

Telecom Italia climbed 8.0% after it said it would start formal talks with KKR to assess the U.S. fund's potential 10.8 billion euro ($11.8 billion) offer for Italy's biggest phone group.