European shares rose on Monday supported by defensive stocks as worries about global growth, after the death of North Korean leader Kim Jong-il, and a warning from Fitch about possible credit downgrades kept investors from riskier cyclical sectors.

The defensive STOXX Europe 600 Food & Beverage index <.SX3P> sector was the main outperformer in Europe, with Suedzucker a top mover up 3.2 percent after Goldman Sachs raised the German sugar company to buy.

Cyclical oil stocks whose performance are correlated to economic growth, however, were the worst performers, with the STOXX Europe 600 Basic Resources index <.SXPP> down 0.5 percent after the death of the North Korean leader triggered worries about global growth and instability in the region.

There were concerns about what might happen next in the reclusive state, where a collapsing economy and a bid to become a nuclear weapons power pose major threats to northeast Asia.

Worries about the euro zone debt crisis also kept investor's out of riskier stocks after Fitch Ratings warned a 'comprehensive solution' to the crisis was beyond reach and said it might cut France and six other euro zone countries credit rating.

Traders said that investors were likely to take profits on any gains later in the day, with no real solution yet to the euro zone debt crisis.

It is a shorters market and not much real long-term investing, Joe Rundle, head of trading at ETX Capital, said. I think it is going to be a negative week with very thin volumes.

Everyone is talking about North Korea and the uncertainties, while Fitch had quite strong words in its statement. It does not look like anything is going to be solved in Europe until it is right on the brink.

Euro zone finance ministers will discuss at a Monday teleconference the draft text of the new euro zone fiscal compact so that it can be finalised by the end of January, EU officials said.

They will also consider the size of individual bilateral loans to the International Monetary Fund, in talks from 2:30 p.m.

By 9:55 a.m., the pan-European FTSEurofirst 300 <.FTEU3> index of top shares was up 0.6 percent at 962.51 points having been as low as 949.99 earlier.


Fund flow research suggested an elevated level of risk aversion by overseas equity investors over the past week.

Research from Nomura showed a lower-than-average net investment activity from global mutual fund investors, but this was not yet at the levels that we would signal as significantly bearish sentiment.

The week saw outflows of $8 billion (5.2 billion pounds) from US equity mutual funds, $0.8 billion from GEM funds and $0.4 billion from Japanese funds. European investors sold a net $1.3 billion from equity mutual funds, the sixth consecutive week of net outflows. (Reporting by Joanne Frearson)