European shares advanced on Monday, in light trade, bolstered by mounting expectations that central banks will take action to boost flagging economies after the release of weak factory data, in the run-up to this week's key European Central Bank meeting.
Investor optimism over policy response has currently got the upper hand over worries triggered by gloomy economic data releases out of the United States, Europe, and China.
A survey showed on Monday that the euro zone manufacturing sector contracted faster than previously thought last month, following two complementary surveys indicating China's manufacturing sector has been badly hit by slowing new orders.
"You've now got a situation where you had weak Chinese PMI overnight, and the markets are up because bad data is now perceived as good news… because everybody's looking for policy response," Nick Nelson, strategist at UBS, said.
"You've obviously got (U.S. non-farm) payrolls on Friday and the Fed (FOMC) next week, so I think the markets are going to be pushed around by European and U.S. and Chinese policy response. It's going to be fairly messy to try and work out what they're reacting to."
Miners were the standout gainers on Monday, ahead 1.5 percent following the weak data out of China, which could strengthen the case for further policy steps to bolster growth.
Kazakhmys, Antofagasta and Rio Tinto enjoyed respective gains of 2.5 percent, 2.3 percent, and 2.1 percent.
The FTSEurofirst 300 was up 0.6 percent at 1,088.90 by 1133 GMT, having ended 0.5 percent higher on Friday after U.S. Federal Reserve Chairman Ben Bernanke kept the door open for further stimulus if needed.
Trading volume was light, at 23 percent of the 90-day daily average, with investors reluctant to get too involved in the market in the absence of any U.S. lead on Monday, with Wall Street closed for a public holiday.
ECB WATCH
Stock markets notched up strong gains after ECB head Mario Draghi promised on July 26 to do "whatever it takes" to protect the euro from the region's debt problems, but have failed to move much higher since mid-August.
Investors are keen to see whether the rally can get further legs from the ECB's meeting on Thursday, with hopes running high ECB President Mario Draghi will offer some details about the bank's bond-buying scheme to lower borrowing costs of countries such as Spain and Italy.
"I don't think (the details of) bond buying (are) fully priced in yet… there's no reason why we couldn't see a return to the highs over the last couple of weeks," Angus Campbell, head of market analysis at Capital Spreads, said.
Societe Generale said in a note that it expected new clues from Thursday's meeting, but with final details only after a German Constitutional Court ruling on Sept. 12 that could have an impact on the ECB's bond-buying plans.
It added, however, that a rate cut may come this week.
Elsewhere among the gainers on Monday, Fresenius climbed 2.1 percent after pulling the plug on plans to take over Rhoen-Klinikum, which slid around 22 percent.
Volume in Fresenius was solid, at 44 percent of the 90-day daily average.
ARM featured on the FTSEurofirst 300 fallers' list, off 2.5 percent, hurt by a Deutsche Bank rating downgrade to "sell", mainly on valuation grounds, and an article in the Financial Times saying the chipmaker is preparing for a sales slowdown by cutting back recruitment.
