European stocks on course for seventh straight month of gains

European stocks edged higher on Tuesday, on track for their seventh straight month of gains, as hopes for more policy support overshadowed economic risks from the Delta variant of the coronavirus.

The pan-European STOXX 600 index rose 0.1%, with Asian stocks reversing earlier losses as fresh signs of a slowdown in China's economy spurred hopes of more stimulus.

Technology, industrial, chemical and mining stocks were the top gainers.

The trade-heavy German DAX outperformed its regional peers with a 0.5% rise, while UK's internationally focussed FTSE 100 dipped 0.2% after a long weekend as the sterling rose.

The benchmark STOXX 600 was on course to end August with gains of more than 2.6%, in what could be its longest monthly winning run since 2013.

Strong earnings and a relatively high rate of vaccination have boosted European recovery hopes, while US Federal Reserve's remarks last week reaffirmed views they were in no rush to tighten monetary policy.

"We're still riding the Powell wave," said Craig Erlam, senior market analyst at OANDA.

"On the China side, it's worth noting that it's been priced in for a while. While the data is quite weak, the situation has evolved over the last couple of weeks," Erlam said. Meanwhile, data showed German unemployment fell more than expected in August.

The country's centre-left Social Democrats (SPD) extended their lead over Chancellor Angela Merkel's conservatives, according to a latest poll published on Monday, just weeks ahead of a general election.

Analysts expect European stocks to hold around current record levels for the rest of 2021, supported by stellar earnings while worries around US monetary policy tightening, German elections and a Chinese regulatory crackdown will cap gains.

Among stocks, Dutch technology investor Prosus NV rose 4.6% after it said it had agreed to buy Indian payments platform BillDesk for $4.7 billion.

Airlines including EasyJet, British Airways-owner IAG, Ryanair and Lufthansa were down between 1.2% and 3.2%, after European Union governments agreed to remove the United States from the EU's safe travel list.

Rate-sensitive banks were also among the top losers, including Denmark's Danske Bank, ahead of euro zone inflation data for August that is due later in the day.

Early readings due at 0900 GMT are expected to show prices rose 2.7% year-on-year, according to a Reuters poll, up from 2.2% in July. On Monday, data showed German inflation at a 13-year high, but failed to move markets, as most analysts expect it to be temporary.