London (AFP) - European markets rose on Monday as defence stocks surged ahead of a meeting between European leaders to address Washington’s sudden policy shift on the war in Ukraine.

US President Donald Trump sidelined Kyiv and its European backers last week by calling his Russian counterpart Vladimir Putin to discuss beginning negotiations to end the conflict.

With fears that Europe could be sidelined in negotiations to end the three-year war, European leaders were gathering in Paris amid talk of greater defence spending.

London, Paris and Frankfurt stock markets all rose on Monday, with defence stocks driving most of the action.

Britain’s BAE Systems was up nearly nine percent, topping London’s FTSE 100 index, while French defence group Thales rose 7.5 percent in Paris.

Shares in German arms maker Rheinmetall jumped 14.3 percent on Frankfurt’s DAX index, which set a new record high.

CMC Markets analyst Konstantin Oldenburger said the company’s stock faced a short squeeze, where investors who bet on it falling had to buy it to cover their losses, driving it higher still.

“With today’s double-digit gain, the defence contractor has increased in value by nearly a third since last Wednesday,” he noted.

Analysts were cautious, however, over the prospect of higher European defence spending and its economic consequences.

“There is a fear that the breakdown in military ties between the US and Europe will necessitate a huge ramp-up in defence spending, thus pushing debt and borrowing costs higher once again,” said Joshua Mahony, chief market analyst at Scope markets.

It adds to the uncertainty on trading floors since Trump returned to the Oval Office last month announcing a series of tariffs against key trading partners.

While some of the measures have been delayed for negotiations, observers warn the imposition of huge levies on exports to the world’s biggest economy could deal a hefty blow to financial markets.

Wall Street was closed for a public holiday.

Asian equities ended Monday on a mixed note after a tepid lead from Wall Street.

Hong Kong was barely moved after last week’s rally fuelled by a surge in tech firms following the release of Chinese startup DeepSeek’s chatbot.

“DeepSeek proves that China’s private sector remains innovative and competitive, and it also shows the possibility for China’s continued AI advancement,” said analysts at Bank of America Global Research.

Still, the mood in Hong Kong was improved by news that Chinese President Xi Jinping was meeting Alibaba co-founder Jack Ma and other top entrepreneurs.

The gathering on Monday fuelled hopes of fresh support for the private sector, which has been hit by a series of crackdowns by the Chinese government in the past few years, hammering share prices.

Ma’s inclusion hints at the billionaire magnate’s potential public rehabilitation after years out of the spotlight following a tangle with regulators.

Other participants included Ren Zhengfei – the founder of tech titan Huawei – and Wang Chuanfu, who established electric vehicle giant BYD.

Tokyo edged up as data showed the Japanese economy slowed sharply last year but enjoyed a forecast-topping final quarter thanks to strong exports.

- Key figures around 1630 GMT -

London - FTSE 100: UP 0.4 percent at 8,768.01 points (close)

Paris - CAC 40: UP 0.1 percent at 8,189.13 (close)

Frankfurt - DAX: UP 1.3 percent at 22,798.09 (close)

Tokyo - Nikkei 225: UP 0.1 percent at 39,174.25 (close)

Hong Kong - Hang Seng Index: FLAT at 22,616.23 (close)

Shanghai - Composite: UP 0.3 percent at 3,355.83 (close)

New York - Dow: Closed Monday for a public holiday

Euro/dollar: DOWN at $1.0483 from $1.0495 on Friday

Pound/dollar: UP at $1.2613 from $1.2587

Dollar/yen: DOWN at 151.41 from 152.25 yen

Euro/pound: DOWN at 83.11 pence from 83.36 pence

West Texas Intermediate: UP 0.4 percent at $70.98 per barrel

Brent North Sea Crude: UP 0.3 percent at $74.95 per barrel

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