European shares held onto 2-month highs Monday despite a series of indications that growth in the 17-member Eurozone will be elusive as the second half of the year gets underway.

Confidence from last week's European leaders' summit in Brussels and some better-than-expected readings on manufacturing activity in China and Japan helped European shares get out of the gate strongly this morning, extending last week's rally into the highest levels we've seen since the early days of May. The FTSE Eurofirst 300, Europe's broadest bluechip indicator, rose more than a full percent to trade at 1,033 this morning, the highest since 3 May.

Support from European leaders is a key component to the rally, analysts say, particularly with respect to the region's struggling banks, which will be able to directly use the permanent bailout facility, the European Stability Mechanism, for recapitalisation. The ability to use the ESM as a "buyer of last resort" in the bond markets was another key pillar for the recent optimistic tone, although both concepts are beginning to face sterner tests of practicality.

Finland has long raise its objections to using the ESM in a market-lending capacity and reiterated its concerns in a report to its parliament's Grand Committee, a statement from a senior government official to Reuters earlier today -"Finland finds it an inefficient way to stabilise markets" - and the suggestion that bond purchases would need EU unanimity.

Spanish and Italian benchmark government bond yields, the principal beneficiary of any ESM intervention, continued to fall Monday, although both remain firmly elevated from levels earlier in the year. Spain's 10-year debt was market at 6.30 percent by mid-day while Italy's changed hands at a price that would indicate a yield to maturity of 5.74 percent.

The European single currency fell to $1.2581 against the US dollar after two disappointing readings of economic activity around the region, including a record-high 11.1 percent reading of Eurozone unemployment. Around 17.6m people are without work in the 17-member Eurozone, the highest number since collective records began in 1995.

Surveys of manufacturing activity in Europe and the United Kingdom were also disappointing, although both figures surpassed the very low expectations of economists and analysts.

Market focus is now firmly fixed on Thursday two key interest rate decisions from both the Bank of England and the European Central Bank, where each is expected to lower key policy rates in an effort to spark a rebound in activity during the second half of the year.

"We expect the ECB to follow through on Thursday with a 50bp rate cut, vs market pricing of 10bp of cuts and the median analyst forecast for a 25bp cut," wrote Barclays analyst in a research note published Monday.

Societe Generale strategist Michala Marcussen expects, at the very least, an expansion in the BoE's £325bn asset purchase programme: "A £50bn increase in asset purchases on the 5 July meeting is the expected outcome from lower inflation risks and downside risks from the on-going euro crisis. Over the coming months, the real focus will be on the new "funding for lending" initiative and how successful this measure will prove."