FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, August 27, 2025. REUTERS/staff/File Photo

By Tristan Veyet and Johann M Cherian

(Reuters) - European shares finished higher on Monday, while French stocks also rose as investors stayed calm in the run-up to a no-confidence vote later in the day that lead to the ouster of the country's fifth prime minister in three years.

French Prime Minister Francois Bayrou lost a vote of no-confidence on Monday, at a time when the continent's second-largest economy struggles to rein in its debt. France also faces its first of many credit rating reviews later this week.

The pan-European STOXX 600 ended 0.52% higher at 552.04 points at the close, and France's CAC 40 index closed up 0.78%.

Despite the day's gains, French equities have underperformed the STOXX index so far this year, pressured by rising longer-dated bond yields, which have hit multi-year highs on concerns over debt-fuelled fiscal spending. [EUR/GVD]

The collapse of Bayrou's minority government would deepen France's problems as Europe seeks unity over Russia's war in Ukraine, an increasingly dominant China, and trade tensions with the United States.

"Persistent political uncertainty in the euro zone's second-largest economy could be problematic, but we're not there yet," said Fiona Cincotta, senior market analyst at City Index.

"There are still quite a few uncertainties, and that's not being fully priced in at the moment, but I don't think the market's panicking about it either."

France's 30-year government bond yield was down 4.4 bps at 4.336%. It hit 4.523%, its highest since June 2009, earlier this month.

Most sectors on STOXX 600 ended in the green, led by the retail which rose 1.8%. Construction and materials followed by adding 1.7%.

Banks <.SX7E> climbed 1.5%, recouping some of last week's losses after weak U.S. jobs data solidified expectations for Federal Reserve rate cuts. The Fed will announce its next policy decision on September 17.

Meanwhile, the European Central Bank will release its monetary policy verdict on Thursday, with economists expecting no change to interest rates as inflation hovers near the central bank's target of 2% and policymakers assess the potential impact of U.S. tariffs on the euro zone economy.

European oil and gas stocks rose 0.6%, tracking a rise in global crude oil prices. The prospect of additional sanctions on Russian crude after an overnight strike in Ukraine outweighed OPEC+'s planned output hike.

On the data front, German exports unexpectedly fell in July on a sharp decline in U.S. demand due to tariffs, while industrial output climbed.

On the flipside, telecommunication stocks lost 1.5% as it appeared to mirror a drag in telecom firms following EchoStar agreeing to sell its wireless spectrum licenses to SpaceX.

Healthcare stocks dipped 0.6%, with Novo Nordisk falling 0.9%. The U.S. Food and Drug Administration said it is tightening oversight of imports of obesity drug ingredients, citing concerns that many of the items may be adulterated and pose a safety risk.

Phoenix Group shed 7.6%, becoming the biggest individual loser for the day, as the British insurer reported a larger-than-expected decline in book value and said it would rebrand as "Standard Life Plc" in March 2026.

(Reporting by Tristan Veyet in Gdansk and Johann M Cherian in Bengaluru; Editing by Sherry Jacob-Phillips)