STOXX 600 set to rise almost 3 this week
Defensive sectors lead gains
Euro zone PMIs unexpectedly contract in July
Danske banks slips on axing dividends

July 22 Reuters European shares were set to notch their best week in two months on Friday as concerns over an energy supply crunch eased, bringing some calm to investors worried about a big rise in interest rates and a political crisis in Italy.

The panEuropean STOXX 600 index rose 0.4 on the day after struggling for direction in the prior session following an aggressive 50basis point rate hike, the first increase by the European Central Bank in 11 years.

While Russian gas flows to Europe resumed after a scheduled maintenance outage, market participants fretted as euro zone business activity unexpectedly shrank in July, due to a speedy downturn in manufacturing and a nearstalling of service sector growth. 

Gains on Friday were led by sectors that are more resilient to uncertainty such as utilities, food and beverages and real estate stocks.

Cyclical stocks such as banks, automakers and miners lost between 0.5 and 1.2., while rising oil prices lifted heavyweigh energy stocks 0.7.

We retain a cautious view on European stocks as the ECB treads a fine line between fighting inflation and avoiding recession, said Mark Haefele, chief investment officer at UBS Global Wealth Management.

The abandonment of forward guidance will likely spur rate volatility ahead of the next ECB meetings, as investors are left to…