Stocks recover poise, Citi settles fines

LONDON (Reuters) - Stock markets rose on Monday as investors put aside concerns about euro zone banks and looked forward to corporate earnings and a raft of global economic events, including testimony from the head of the U.S. Federal Reserve.

Europe's biggest markets gained more than half a percent <.FTEU3>, helped by M&A activity in the pharmaceutical sector and easing anxiety about the fallout from problems at Portugal's biggest listed bank.

Japan's Nikkei <.N225> bounced 0.9 percent and U.S. markets also looked set to open slightly higher, helped by a more than 1 percent pre-market bump for Citigroup after it announced a settlement with the U.S. Justice Department.

"The markets will recover a bit," said Emile Cardon, an economist at Rabobank.

"But I'm a bit cautious. There's still reason to believe that not all problems were resolved in the euro zone and we will continue to see bouts of volatility during a fragile recovery."

European markets had calmed on Friday as investors decided that financial problems associated with the founding family of Banco Espirito Santo were unlikely to disrupt Portugal's financial system or revive broader worries about the bloc's weaker economies.

Suspicion remains that stocks and a number of other markets buoyed by the money the Fed has poured into the global economy are headed for a fall. But it may take a clearer sign that U.S. interest rates are about to rise, tightening that ultra-loose monetary policy, to burst any bubble.

"This continual sense of calm before the storm endures," said Simon Smith, the chief economist at retail foreign exchange trading platform Fxpro.

While stock market investors had become more nervous and calls for a pullback in indices rose, he said, the drop on Monday in gold, the traditional safe haven, suggested the market was growing more optimistic. Gold reached a 16-week high last week.

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Merger activity has picked up strongly this year as companies begin to put some of the cash reserves built up in a cautious couple of years to work. London's FTSE index was supported by the latest such saga.

Shares in UK-listed pharmaceutical company Shire , rose 2.6 percent after it said it was ready to recommend a new 53.20 pound ($90.53) per share offer from U.S. firm AbbVie .

But there remain substantial concerns about banks, global growth and the danger that investors have grown over-exuberant.

Singapore's main index went flat <.FTSTI> after the city-state reported a surprise 0.8 percent annualized contraction in economic activity for the second quarter, led by a steep drop in manufacturing.

The first batch of quarterly earnings has not been especially auspicious, and many of the major U.S. banks report this week, along with big tech names, including Intel Corp , Yahoo Inc , eBay Inc and Google Inc .

Citigroup Inc said it agreed to pay $7 billion to settle a U.S. government investigation into mortgage-backed securities the bank sold in the run-up to the 2008 financial crisis. It will take a related $3.8 billion charge in the first quarter.

Federal Reserve Chair Janet Yellen's appearance in the U.S. Congress on Tuesday and Wednesday will dominate global markets, which want above all to know how long U.S. rates might stay near zero once the central bank ends its asset-buying program.

The futures market <0#FF:> rallied last week as investors again pushed out the likely timing of a rate hike into the second half of 2015.

U.S. data due this week includes retail sales, industrial production and several housing indicators. China reports gross domestic product for the second quarter on Wednesday and retail sales for June.

Currency markets were quiet with the dollar index a touch lower at 80.128 <.DXY>.

Prices of Brent crude oil were marginally higher at around $107, not far from a three month-trough of $106.27.

(Additional reporting by Sudip Kar-Gupta and Marius Zaharia)