Europe's STOXX 600 ends higher as bank stocks cushion oil price hit

By Avinash P and Niket Nishant

Oct 12 (Reuters) - Europe's equity benchmark rose on Monday, kicking off a busy week on a strong note as a surge in bank shares helped absorb the hit from higher oil prices.

The pan-European STOXX 600 index .STOXX closed 0.65% higher at 635.65 points, posting its second consecutive day of gains.

After weeks of being swayed by broader economic factors such as crude prices and bond yields, investors are expected to zero in on corporate earnings this week.

Strong results could dispel the gloom following renewed tensions in the Middle East. However, France's LVMH LVMH.PA reported worse-than-expected third-quarter organic sales growth, as weak demand for its fashion and leather goods weighed.

Its shares closed 1.18% higher ahead of the report, while the luxury sector .STXLUXP rose 0.95%.

Semiconductor equipment maker ASML ASML.AS and investment firm EQT EQTAB.ST are due to report later this week.

BANKS FIND FAVOUR

"In areas such as banking, European and Asian stocks could offer stronger value and return potential than their US counterparts," analysts at Julius Baer wrote.

Spain's bank-heavy IBEX .IBEX jumped 1.33%, the most among regional peers, while the STOXX 600 banking index .SX7P advanced 1.5%.

Oil prices were hovering near two-week highs as attacks on Saudi Arabia overshadowed the prospect of increased supplies after US President Donald Trump hailed fresh Russian diesel exports and a Russia-Ukraine ceasefire covering energy targets. O/R

David Morrison, senior market analyst at Trade Nation, said third-quarter earnings, especially from semiconductor companies and other AI beneficiaries, would be key in shaping near-term market sentiment.

Euro zone bond yields eased on Monday, further helping lift sentiment for riskier assets. GVD/EUR

However, yields remain near multi-year highs, reflecting concerns that interest rates will stay higher for longer.

Traders currently expect the European Central Bank to keep rates on hold at its October meeting, while pricing in a quarter-point rate hike in December, according to LSEG-compiled data.

Still, analysts point to limited scope for further ECB tightening given the euro zone's weak growth backdrop.

"The euro area cannot point to robust economic growth. That's simply not the case," Morrison added.

Among other stock moves, Nordex NDXG.DE advanced 3.9% after the onshore wind turbine manufacturer said its project order intake in the third quarter rose 30% year-on-year.

Vallourec VLLP.PA rose 3.8% after the French steel tube maker won a contract from TotalEnergies TTEF.PA for the Absheron gas field in Azerbaijan.

Inwit INWT.MI advanced 1.8% after Reuters reported exclusively that the telecom towers company's leading shareholders were arranging the financing for a potential take-private deal.

Telecom stocks .SXKP were the biggest laggards, down 0.54%.