By Susan Mathew and Shreyashi Sanyal
(Reuters) -European shares touched their highest level in almost a month on Monday, with optimism buoyed by China's easing of COVID-19 restrictions and adding of new stimulus.
Authorities in China's commercial hub of Shanghai will facilitate conditions for businesses to resume work from Wednesday, while city officials announced an action plan to boost the economy, supporting hopes for improved growth and demand from the world's second-largest economy.
The pan-European STOXX 600 index rose 0.6% to 447.79, a level not seen since early May, boosted the most by luxury firms, which derive significant demand from China.
Loius-Vuitton owner LVMH, Hermes, Pernod Ricard and Burberry rose between 0.6% and 4.4%.
"There's a big sigh of relief... that more stringent restrictions will be eased, particularly in Shanghai and Beijing, because (investors have) been really worried about the ongoing zero COVID strategy and the impact for China's economy," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
Gains were largely broad-based, led by a 2.0% jump in technology stocks. Still, trading volumes are expected to be subdued with U.S. markets closed for the Memorial Day holiday.
European stocks enjoyed their best week since mid-March a week ago as upbeat U.S. consumer sentiment data, signs of peaking inflation and clarity on the Federal Reserve's plans calmed market participants.
This week, data is expected to show euro zone inflation rose further from last month's record high, piling pressure on the European Central Bank.
German inflation rose to its highest in nearly half a century in May on the back of soaring energy and food prices, strengthening the case for a big, half a percentage point European Central Bank interest rate hike in July.
Andrew Kenningham, chief Europe economist at Capital Economics, said the data "provides more ammunition for those who will argue at next week's monetary policy meeting that the ECB should exit negative interest rates promptly, rather than at the leisurely pace."
Monday's gains saw the STOXX 600 cut monthly losses to 0.9%. It has logged gains only in March this year.
Sanofi slid 1.9% after the U.S. Food and Drug Administration put an actual use trial of its Cialis erectile Ddysfunction treatment on clinical hold.
Telecom Italia jumped 3.1% after the company and Italian state investor CDP signed a preliminary agreement to combine the phone group's fixed network assets with those of state-owned broadband rival Open Fiber.
The telecom sector <.SXKP> fell 0.6% as Deutsche Telekom and Cellnex declined. A report said Canada's Brookfield and the Spanish firm are eying a $21 billion bid for Deutsche Telekom's towers unit.
(Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru; Editing by Bernadette Baum)