London's FTSE-100 Index opened 0.4% higher, the DAX in Frankfurt rose 1.1% to 6141 and the CAC-40 Index in Paris gained 1.4% to 3209.38.
Investors welcomed news late Sunday that Italian Prime Minister Mario Monti's cabinet approved a law aimed at making sure Italy eliminates its budget deficit by 2013, but the main focus will be on the upcoming EU summit.
The market is looking for a "grand plan" to be delivered, said Crédit Agricole Corporate & Investment Bank. Ahead of that, though, French President Sarkozy and German Chancellor Merkel will meet in Paris on Monday, to discuss fiscal integration and any news from the meeting is likely to fuel expectations about the summit.
"We expect the two leaders to urge a significant step towards greater integration including automatic sanctions for those member states that breach the rules of the enhanced Stability and Growth Pact," said Crédit Agricole. "Such far-reaching measures would likely require treaty changes and [one of out many] question[s] would be how such a long process could be handled in the eye of the European storm."
Also in focus Monday will be a Sunday Times report suggesting that the European Central Bank is preparing a €1 trillion ($1.339 trillion) cash infusion scheme for the euro zone. The report, which didn't say where The Sunday Times got the information, said that the plan would be executed if Europe's leaders reach agreement on a broader political reform of the currency bloc.
With all this in mind, the stakes are high ahead of the EU summit, especially given that market participants have been left disappointed by such meetings in the past. "The EU summit may well deliver the 'fiscal compact' that will encourage the European Central Bank to intervene more aggressively in bond markets," said Standard Chartered. "That said, there is a risk that governments continue to disagree over Treaty change, and the ECB may still be unwilling to act unless the situation deteriorates further."
Add to the mix a worsening macroeconomic backdrop and investors have every reason to be wary. "The euro-area economy is probably already in recession and is likely to remain so until mid-2012, hit by a triple-whammy of fiscal tightening, constrained credit availability and a shock to confidence that will curb businesses investment and consumer spending," said Standard Chartered. "There are limited policy options to stimulate growth, as almost all euro-area governments have tightened their fiscal policy stance."
Also this week, interest rate announcements are due from both the Bank of England and the European Central Bank on Thursday. Crédit Agricole expects the ECB to cut rates by 0.25 percentage point to 1%, and for some additional liquidity measures to be announced.
Monday's economic calendar is fairly busy. Euro-zone services PMI is at 0900 GMT (0400 ET), while the U.K. CIPS services PMI is at 0930 GMT and euro-zone retail sales are at 1000 GMT. In the U.S., industrial new orders and ISM nonmanufacturing data are at 1500 GMT.
On Wall Street on Friday, stocks ended barely changed, capping a strong week after the U.S. unemployment rate unexpectedly dropped and European leaders and central bankers redoubled efforts to tackle the debt crisis. The Dow Jones Industrial Average finished with a loss of less than 0.1% at 12019.42, but surged 7% last week, the biggest weekly percentage gain since July 2009. The Standard & Poor's 500 Index also shed less than 0.1% to 1244.28, but added 7.4% last week, while the Nasdaq Composite eked out a rise of 0.73 point to 2626.93 and ended the week up 7.6%.
In Asia, stock markets were mixed Monday as investors remained cautious ahead of a series of key meetings in Europe later in the week. Japan's Nikkei Stock Average rose 0.4%, Australia's S&P/ASX 200 climbed 0.8%, South Korea's Kospi Composite was flat, Hong Kong's Hang Seng Index advanced 0.4%, China's Shanghai Composite Index fell 0.6% and Singapore's Straits Times Index lost 0.4%.
In foreign-exchange markets, the euro gained ground against the dollar. The common currency was recently at $1.3412 from $1.3391 late Friday in New York. The dollar was fetching ¥78 from ¥77.97.
Spot gold was at $1,744.90 a troy ounce, up 10 cents from its New York settlement Friday. January Nymex crude oil futures were up 48 cents at $101.44 a barrel and January Brent oil futures were up 68 cents at $110.62. The December bund contract was down 0.25 at 135.26. For the latest updates on the stock market, visit Stock Market Today
foreign exchange markets dec 5 2011, FTSE-100 Index december 5 2011, DAX in Frankfurt december 5 2011, Spot gold december 5 2011 december 5 2011, CAC-40 Index december 5 2011 For the latest updates PRESS CTR + D or visit Stock Market news Today
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