European shares edged higher on Monday, though gains were capped by caution as investors tread carefully in anticipation of a wave of crucial economic data from the region this week.
The pan-European STOXX 600 index was up 0.2% at 515.5 points. The benchmark posted its worst day in more than a month on Friday.
Business activity in the euro zone contracted unexpectedly in September, according to data released earlier in the day. The bloc's PMI sank to 48.9 from 51 in August.
The downturn appeared broadbased with Germany, Europe's largest economy, seeing its decline deepen while France - the currency union's second biggest - returned to contraction following August's Olympics boost.
Germany's DAX edged 0.3% higher after PMI figures showed that business activity contracted in September at its sharpest pace in seven months.
France's CAC 40 lost 0.3% after data signalled its services sector contracted sharply in September.
British flash PMI figures for September are expected at 0830 GMT.
Board members from the European Central Bank are set to speak through the week, with Frank Elderson and Piero Cipollone speaking later in the day.
The euphoria from the U.S. Federal Reserve's jumbo rate cut, which had sparked a market rally globally, is fading as investors shift their focus to potential further cuts.
Attention is on the core personal consumption expenditures (PCE) index, the Fed's preferred inflation measure, due on Friday. This data will indicate if more rate adjustments are imminent.
"The number of cuts is not the main risk to equities. It is a much weaker growth," Lilian Chovin, head of asset allocation at Coutts said.
"What's next for European equities - you want to start seeing an uplift in earnings, which haven't been very strong."
The Swiss National Bank is expected to cut rates by a quarter point on Thursday, while Sweden's central bank is anticipated to ease by 25 basis points on Wednesday.
Among individual stock moves, HSBC Holdings (NYSE:HSBC) rose 1.1% after BNP Paribas (OTC:BNPQY) signed a deal to buy the lender's private banking unit in Germany.
Shares of Germany's Commerzbank (ETR:CBKG) fell 4.4% as the government said it would retain its 12% stake in the lender, that will likely keep any merger with Italy's UniCredit on hold.
The banking sector lost 1.1%.
AstraZeneca (NASDAQ:AZN) dropped 1% after its experimental precision drug developed with Daiichi Sankyo did not significantly improve overall survival for patients with a type of breast cancer in a late-stage trial.
China's central bank lowering its 14-day repo rate by 10 basis points is also acting as a slight tailwind for Europe stocks.
"There are rumours that there's going to be more stimulus in the coming days. That is what could really help support activity in China and manufacturing activity and the stock markets in Europe," Coutts' Chovin said.
