European shares trod water on Monday as worrying comments on Germany's industrial and services sectors curbed optimism stemming from China's encouraging factory output and retails sales data.
Germany's Economy ministry said its industrial activity is sluggish and recent data pointed to slower growth in the services sector, which led Frankfurt's DAX to give up gains of as much as 1%.
"The German manufacturing sector has been contracting throughout 2019, but what is concerning about this update is the talks about slowing growth in the services sector, which was actually doing well," said David Madden, market analyst at CMC Markets in the UK.
"Germany is the powerhouse of Europe and if their economy isn't in good shape that is going to spell bad news for everyone else (European countries)."
The pan-region index traded flat at 0904 GMT. German shares, which have a significant exposure to China, were trading up 0.2% as Chinese factory output and retail sales data topped forecasts.
"The June data... is an imminent upturn, markets seem to be growing a bit more confident that the stimulus we've seen from Chinese authorities over the past six to nine months is actually working its way through the system," said Florian Hense, European economist at Berenberg in London.
Auto stocks were the biggest gainers, up 1%, followed by the technology sector.
Regional chipmakers gained after a senior U.S. official said the United States may approve licenses for companies to re-start new sales to blacklisted Chinese telecoms equipment maker Huawei in as little as two weeks.
Infineon, ASM and STMicroelectronics rose between 0.2% and 0.8%.
European shares saw a massive fall in May due to a sharp escalation in trade tensions, but have recovered since on hopes of looser monetary policy from major banks. Positive developments on trade is a key factor that will determine if this rally can sustain.
Galapagos NV surged 1% to top the regional benchmark after Gilead Sciences Inc said it will invest $5.1 billion in the Belgian-Dutch biotech firm.
Meanwhile, Anheuser-Busch InBev dropped after it pulled the planned listing of its Asia Pacific unit in Hong Kong, Budweiser Brewing Company APAC Ltd, in what would have been the world's biggest initial public offering of 2019.