By Amruta Khandekar and Shubham Batra

(Reuters) -European shares hit a one-week high on Monday, buoyed by data indicating signs of stabilisation in the Chinese economy, while traders braced for a busy week with the crucial U.S. inflation print and European Central Bank (ECB) policy meeting in focus.

The pan-European STOXX 600 index gained the most in two weeks, rising 0.6%, after shedding nearly 1% last week amid worries about higher-for-longer U.S. interest rates.

Italian stocks led the gains among European markets, climbing 0.8%, while UK's FTSE 100 rose 0.4%.

Among sectors, the mining index jumped 2.4% as prices of metals rose on prospects of better demand from top consumer China. [MET/L]

Positive inflation data and more stimulus measures from Beijing added to signs that the world's second-largest economy was stabilising.

Investors are now awaiting the U.S. inflation data on Wednesday that would set the direction for global interest rates, while money market participants see a 60% chance that the ECB would keep its interest rates steady on Thursday, according to LSEG data.

"Our economists have nervously held their 3.75% terminal deposit rate call for many months now, and as such they think the ECB will stay on hold," said Deutsche Bank strategists in a note.

"However, even if they don't hike this week, don't expect any sign that the council are confident that this is the last hike. A lot of uncertainty remains over European inflation, whilst GDP has been in near-stagnation since last autumn."

Investors will also closely monitor commentary from ECB officials through the week to cement bets on the central bank's interest rate trajectory.

Among individual stocks, Covestro rose 3.2% after the German chemicals firm on Friday entered into open-ended discussions with suitor Abu Dhabi National Oil Company (ADNOC) over a takeover approach.

Vistry Group led the gains among individual stocks, jumping 13.3%, after the British homebuilder said it would merge its affordable-housing business 'Partnerships' with its Housebuilding operations.

Alfa Laval fell 2.6% after Citi cut the Swedish engineering group's rating to "Neutral" from "Buy", saying it expected a slowdown in order growth to hit earnings.

Ratings agency Fitch will review Germany's long-term credit rating on Friday. The agency currently assigns an 'AAA' rating with stable outlook to Europe's largest economy.