By Shristi Achar A and Shashwat Chauhan
(Reuters) -European equities ended marginally higher on Monday after hitting two-year highs in the previous session, propped up by rising energy shares, while losses in telecoms and financial stocks kept the gains in check.
The pan-European STOXX 600 index closed 0.2% higher, hovering near its highest level in two years hit on Friday, coming off its best weekly performance in three months.
Oil and gas stocks held on to their gains during the day, adding 1.0%, while crude oil prices lost steam in a choppy session. [O/R]
On the downside, telecoms eased 0.8% with Finnish firm Elisa falling 4.5% after brokerage Inderes downgraded its rating to "reduce".
Banks dipped 0.5%, while financials lost 0.4%, bogged down by a 3.7% fall in Schroders (LON:SDR) after Exane BNP Paribas (EPA:BNPP) downgraded the UK fund manager's shares and Jefferies raised concerns about the company's prices-earnings premium.
Looking ahead, investor focus will now be on the U.S. Federal Reserve's interest rate decision later this week, with bets of a pause fully baked in and traders split nearly evenly about the first cut coming in March, according the CME FedWatch Tool.
"The Fed has a dual mandate – inflation and employment," said Daniela Hathorn, senior market analyst at Capital.com.
"Whilst the former has come a long way in the last year, the jobs market remains very tight ... in the past, (Fed Chair) Powell has insisted on the need to see some weakness in the labour market to consider loosening financing conditions."
In Europe, the European Central Bank's next move will be an interest rate cut but policymakers speaking on Monday differed on the timing of the move and the trigger for action.
Government bond yields across the continent eased as markets fully priced in a first 25 basis point rate cut by the ECB in April. [GVD/EUR]
Among stocks headlining on Monday, Holcim (SIX:HOLN) jumped 4.7% after the Swiss building materials giant said it would spin off its North American operations.
Bayer (ETR:BAYGN) lost 4.9% after the German company was ordered to pay $2.25 billion in damages in its ongoing litigation linked to an alleged carcinogenic effect of its Roundup weedkiller.
Philips (LON:0LNG) fell 4.4% after the health technology firm agreed on the terms of a settlement with the U.S. Food and Drug Administration over a large-scale recall of ventilators.
Spain's Supreme Court dismissed a 4 billion-euro ($4.33 billion) claim filed by toll-road operator Abertis against the Spanish government over a highway concession.
Shares of ACS and Hochtief, which have a 50% and 20% stake in Abertis, fell 10.0% and 9.1%, respectively.