European stocks close at record high, led by defence shares

Defence stocks powered European shares to a record high on Monday, after expectations mounted of higher military spending in the region, and the prospect of a Ukraine peace proposal boosted sentiment.

Germany's blue-chip index logged its biggest one-day jump since November 2022, and closed at a record high, alongside Britain's benchmark index .

The pan-European STOXX 600 index closed up 1.1%, at a record high, building on 10 straight weeks of gains.

Leaders from major European economies agreed, over the weekend, to boost defence spending to show U.S. President Donald Trump that the continent could protect itself.

Britain said there were several possible proposals for a Ukraine ceasefire after last week's Oval Office rupture between U.S. President Donald Trump and Ukrainian President Volodymyr Zelenskiy.

Rheinmetall surged 13.7% to a record high, while Italy's Leonardo  advanced 16%. Britain's BAE Systems was up 14.5%.

France's Thales  and Dassault Aviation  were up 16% and 14%, respectively.

The European aerospace and defence index  climbed 7.7% to a record high, while the industrial goods and services sector  gained 2.5%.

A Reuters report that said parties in talks to form Germany's new government were considering setting up a defence fund also boosted sentiment towards the defence companies.

"While hopes of a Ukraine peace plan continue to play some part in today's positive market action, it is the expectation of rearmament across Europe that is the most important driver," said Chris Beauchamp, chief market analyst at trading platform IG.