UPDATE 2-European shares at 1-month high as downbeat data spurs stimulus hopes By Reuters

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(For a live blog on European stocks, type LIVE/ in an Eikon news window)

* Retail sales mark surprise contraction in July

* STOXX 600 needs to close 15 points higher to break trading range

* Banks rebound after three days of losses (Adds details on economic data, comment, updates prices)

By Ambar Warrick

Sept 3 (Reuters) – European shares surged on Thursday as a swathe of middling local economic data fuelled continued bets on easy monetary policy to combat the shock from the coronavirus outbreak.

The pan-European STOXX 600 index rose 0.9%, slightly trimming some of the day’s gains after Euro zone sales marked a surprise decline in July from the prior month. a survey of business activity showed the bloc’s dominant service industry almost grinding to a halt in August, as spiking COVID-19 cases in Spain and Italy prompted new curbs. data, coupled with weak inflation readings seen earlier this week, pointed to continued fiscal and monetary support from the government and the European Central Bank.

After the U.S. Federal Reserve last week vowed to tolerate spikes in inflation, the ECB is expected to follow suit.

“The market is starting to discount a permanent easy monetary policy because there is no inflation to make the ECB change its mind, and the only effective lever going forward will be fiscal policy,” said Andrea Cicione, head of strategy at TS Lombard in London.

Travel and leisure stocks led gains across Europe on hopes of a COVID-19 vaccine, while bank stocks bounced back after three straight sessions of losses.

French drugmaker Sanofi and its British peer GSK rose after they announced starting of a clinical trial for a protein-based COVID-19 vaccine candidate. the STOXX 600 hit a more than one-month high, it still stayed within a trading range seen since early-June. The index needs to close at least 15 points higher to break out of the range.

After bouncing back from March lows, a recovery in euro zone stocks and the economy appeared to be stuck in a rut, brewing uncertainty over the remainder of the year.

“The progress we’ve seen so far was the low-hanging fruit, but from here on, it will be a lot more difficult to make progress, and that’s already coming across in the data,” TS Lombard’s Cicione said.

In corporate news, Germany’s Siemens (NS:) Healthineers fell 3.8% after it issued 2.73 billion euros ($3.22 billion) worth of new shares to help finance its planned takeover of U.S. peer Varian VAR.N . consulting and IT services provider Capgemini rose 2.1% after it flagged double-digit revenue growth in 2020 driven by a gradual second-half recovery.

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