European shares rise as defence stocks rally

European shares rose on Monday as defence stocks jumped on news of India aiming to triple its defence exports, while a fall in real estate stocks on disappointing quarterly results from Sweden's Castellum countered gains.

The pan-European STOXX 600 rose 0.3%, with shares of Swedish defence equipment maker SAAB jumping 5.9% to the top of the index.

Shares of Thales, Airbus and Rheinmetall rose between 1.1% and 1.5% after India said it wants to more than triple its annual defence exports to $5 billion by 2024/25 as it looks to ramp up domestic manufacturing.

Limiting the advance in European stocks was a 0.6% fall in the real estate sector index.

Stockholm-listed Castellum slid 2.9% as the company unveiled plans for a rights issue and its board did not propose a dividend.

Investor sentiment recently has been dominated by the U.S. Federal Reserve's hawkish rhetoric, with many officials stymieing investor hopes of the central bank's aggressive tightening cycle coming to an end anytime soon.

European shares posted their first weekly decline in three on Friday, with analysts now pointing to bonds as a viable alternative to equities as a surge in U.S. Treasury yields made them more attractive.

"A big theme in recent years is that there's no alternative to equities given where yields are but now there's a very realistic alternative," said Patrick Armstrong, chief investment officer at Plurimi Wealth.

"I love short-duration bank debt. I think that's where you get the highest risk-adjusted returns ... and there's very little risk involved."

The yield on the benchmark U.S. 10-year Treasury note rose to 3.755%, touching its highest since early January, while the shorter-term two-year Treasury bill traded at 4.5% levels for the last couple of sessions. [US/]

All eyes are now on U.S. inflation numbers on Tuesday, with markets hoping to see a further cooling in January consumer prices.

The European oil & gas sector index fell 0.6% as crude prices retreated from recent gains.