German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 22, 2025. REUTERS/staff

By Shashwat Chauhan, Amir Orusov and Pranav Kashyap

(Reuters) -European stocks recouped their losses on Monday after the fall triggered by the unexpected resignation of French Prime Minister Sebastien Lecornu was offset by a rally in semiconductor stocks following AMD's chip supply deal with OpenAI.

The pan-European STOXX 600 closed flat. The index briefly hit an intraday record high on Monday after climbing more than 2.8% last week.

French stocks tumbled 1.4%, marking their steepest one-day drop since August and snapping a six-day winning streak, after Lecornu abruptly resigned just hours after unveiling his new cabinet.

French bond yields spiked, with the 10-year note hitting a one-week high, while the euro weakened.

LUXURY STOCKS AND BANKS TAKE HIT

Investors remain wary of France's fiscal health, as the country holds the euro zone’s largest budget deficit - nearly double the EU's 3% threshold.

French luxury stocks took a hit, with LVMH, EssilorLuxottica, and Hermes sliding over 2.3% each.

Banks also bore the brunt, with SocGen and BNP Paribas plunging 3.2% and 4.2% respectively.

Mid-cap French stocks fell 1.7%.

Political instability has plagued France since President Emmanuel Macron's 2022 re-election, with no party commanding a parliamentary majority.

"The political turmoil in France isn't new. It's just another confirmation of the fragility within the political system in France and how hard it is for them to be able to maintain a government," said Daniela Hathorn, senior market analyst at Capital.com.

French blue-chips have lagged European peers so far this year, up over 7% compared to double-digit gains seen in most developed countries.

On the European markets more broadly, oil and gas gained 1.3% tracking higher oil prices after OPEC+'s planned production increase for November was more modest than expected.

European semiconductor companies rose after AMD's chip supply deal with OpenAI. BESI jumped 12.4% while ASML rose 2%.

Wall Street brokerage JPMorgan upgraded its stance on the euro zone to "overweight" from "neutral", noting that the equities in the region have become more attractive after several months of underperformance and policy support.

Among other moving stocks, SEB slid 21.4% after the French kitchenware maker cut its annual sales and profit forecast.

Mondi dropped 16% after the British packaging and paper firm said its core profit growth slowed in the third quarter due to weak demand and lower prices.

(Reporting by Shashwat Chauhan and Pranav Kashyap in Bengaluru and Amir Orusov in Gdansk; Editing by Harikrishnan Nair)