LONDON, Sept 12 (Reuters) – European shares rose on Monday after a rapid advance by Ukrainian forces in Kharkiv province, Russia’s worst setback since its push into Kyiv was abandoned in March, while the euro extended on gains of the European Central Bank last week. On Saturday, Moscow abandoned its main bastion in northeastern Ukraine, in a sudden collapse of one of the war’s main front lines after a rapid advance by Ukrainian forces. read more The broad pan-European STOXX 600 (.STOXX) rose 0.7 percent in early trade, hitting its highest level since late August. Sign up now for FREE unlimited access to Reuters.comSign up Germany’s DAX (.GDAXI) rose 1.4%, France’s CAC 40 (.FCHI) and Britain’s FTSE 100 (.FTSE) added 1%. Asian stocks also rallied in slow trade with China and South Korea heading out for a holiday. MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) rose 0.7 percent, recovering modestly from hitting a two-year low last week. Japan’s Nikkei (.N225) added another 1.2%, after rallying 2% last week. “The Russia-Ukraine situation is creating some glimmers of hope in the market that there may be a solution and provide some relief from the intensity of the energy shock,” said Hani Redha, multi-asset portfolio manager at PineBridge Investments. “Currently, the balance of information we have is being interpreted as bullish by the market,” Redha added. News of Ukrainian advances also helped lift the euro, which extended the European Central Bank’s (ECB) gains after last week to hit its highest level against the dollar in nearly four weeks. The single currency was also partly helped by a Reuters report that European Central Bank policymakers see a growing risk of being forced to raise their key interest rate to 2 percent or more to curb record inflation despite a possible recession. read more The euro was last up 1.5% at $1.0194, hitting its highest level against the subdued greenback since Aug. 17. Meanwhile, regional eurozone government bonds underperformed peers, hurt by reports that the ECB may next month begin a discussion on reducing the size of its balance sheet. The yield on Italy’s 10-year government bond rose as much as 6.5 basis points to 4.098%, the highest level since mid-June. Germany’s 10-year yield rose 4 basis points, pushing the spread between Italian and German 10-year yields up to 237 basis points. , “There is an urgent need to move on a rate hike and bring rates to neutral as soon as possible,” Mohit Kumar, rate strategist at Jefferies, said in a note. “Once we reach near-neutral levels, we expect the doves to regain control of the ECB and hence view the recent shift as a front-loading exercise rather than a fundamental change in ECB policy,” Kumar added. The dollar index, which measures the greenback against a basket of six currencies, fell 0.7 percent to 107.98, its lowest since Aug. 26. However, the index is up more than 12% this year, having risen more than 10% against the euro, 13% against the pound and 24% against the Japanese yen. US inflation data released on Tuesday will be key in determining the direction of travel in the near term. Falling gasoline prices appeared to drag down the core consumer price index by 0.1 percent, according to a Reuters poll. The core is forecast to rise 0.3%, although some analysts see the possibility of a softer report. “Commodities, in general, have taken off and that is likely to be the main driver of the softer numbers,” said PineBridge’s Redha. A low number could revive speculation that the Federal Reserve will only hike by 50 basis points this month, though it would likely have to be too weak to have any real impact given how hawkish policymakers have been recently. read more Oil prices edged lower amid worries about a global economic slowdown, although supply cuts led to a 4% rebound on Friday. On Monday, Brent was flat at $92.82 a barrel, while US crude slipped 0.2% to $86.60. The weaker dollar helped push gold to $1,724 an ounce, off last week’s low of $1,690. Sign up now for FREE unlimited access to Reuters.comSign up Reporting by Samuel Indyk in London, additional reporting by Wayne Cole in Sydney Our Standards: The Thomson Reuters Trust Principles.
