UPDATE 2-German stocks outperform Europe as business morale rebounds

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(Reuters) – European shares rose in thin trade on Monday as a closely watched indicator of German business sentiment rebounded in May, with a slew of positive corporate updates boosting sentiment.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, May 13, 2020. REUTERS/Staff

Germany’s DAX .GDAXI surged 2.9% to its highest level since March 6, recovering nearly 38% from this year’s low.

The euro zone stock index .STOXXE rose 2.1%, while the pan-European STOXX 600 gained 1.5%. Trading volumes were lower across the board with the U.S., UK and some Asian countries closed for holidays.

A survey by the Ifo Institute showed German business morale rebounded in May after a dramatic fall the previous month, with activity gradually returning to normal after weeks of coronavirus-induced curbs.

The Ifo business climate index rose to a better-than-expected 79.5 from a downwardly revised 74.2 in April.

“(The) rise…is certainly good news, as it suggests that the downturn in sentiment came to a halt in May, and thus passed its trough in April,” wrote Thomas Strobel, an economist at UniCredit.

“But the fact that the index did not show a stronger upward development indicates that not all companies have experienced an improvement in their economic situation yet.”

Lufthansa (LHAG.DE) surged 7.5% after the German government approved a 9 billion euro ($9.80 billion) package and a company spokeswoman said it would resume flights to 20 destinations from mid-June.

Travel group TUI AG (TUIGn.DE) jumped 15.3% on plans to resume flights to main holiday destinations in Europe by the end of next month.

France’s Airbus (AIR.PA) gained 8.5%, while the broader travel & leisure index .SXTP was up 1.2%.

Despite growing U.S.-China tensions and worries of a resurgence in COVID-19 cases stalling a recovery for equities in recent weeks, investors focused on signs that many European economies were coming back to life.

French authorities reported the smallest daily rise in new coronavirus cases and deaths since before a lockdown began in mid-March, while Spain is set to reopen to international tourism from July, Prime Minister Pedro Sanchez said over the weekend.

All eyes will turn to the European Commission’s recovery plan on Wednesday after EU member states Austria, Sweden, Denmark and the Netherlands stated their opposition to a French-German plan for a 500-billion euros coronavirus recovery fund.

Boosting the STOXX 600, Germany’s Bayer AG (BAYGn.DE) gained 7.8%, after saying it had made progress in seeking a settlement over claims its Roundup weedkiller causes cancer.

French multimedia conglomerate Lagardere SCA (LAGA.PA) surged 16.2% after Bernard Arnault, the billionaire behind luxury fashion group LVMH (LVMH.PA), agreed to buy a stake in the holding company of fellow billionaire Arnaud Lagardere.

Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta, Kirsten Donovan

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