By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- Europe's benchmark stock index posted its biggest gain in almost two weeks on Monday as initial sanctions against Russia weren't as tough as some analysts had feared. The measures came after a majority of Crimeans on Sunday voted to secede Ukraine and join Russia in a referendum that was deemed illegal by the EU and the U.S.

The Stoxx Europe 600 index gained 1.1% to close at 325.83, breaking a three-day losing run. U.S. stocks also traded firmly higher after upbeat data on industrial production and home building.

The advances came as the U.S. and European Union announced sanctions on Russian and Ukrainian officials in response to Sunday's referendum over Crimea, where more than 95% voted to join Russia. The referendum was deemed illegal by the Ukrainian government in Kiev, the U.S. and the EU, but Crimea's parliament passed a vote to proclaim the region an independent state and formally seek Russia's permission to rejoin the country as a republic.

Peter Dixon, strategist at Commerzbank in London, said there had been lots of concerns ahead of the vote that something could go "badly wrong," but that the fears eased on Monday when both the referendum and the sanctions broadly turned out as expected.

"Some people now think that the worst-case scenarios won't materialize, but that is a bit premature. We all know that more sanctions are on the table and we don't know what the Russians' intensions are. The sentiment could turn around quickly," he said.

The sanctions imposed so far are limited to visa bans and asset freezing on officials linked to the unrest in Crimea, but stricter measures could come. U.S. President Barack Obama said on Monday that "if Russia continues to interfere in Ukraine, we stand ready to impose further sanctions."

As worries about Ukraine linger, Dixon said he is concerned with how high European equities were currently trading.

"I wouldn't be surprised if we got to a point where people are looking at all these green numbers and think this is a good time to sell," he said. "Who knows what could happen in the U.S. overnight -- in Europe's morning it could all look different."

Russian stocks moved higher in Monday's action, with the MICEX Index up 3.6% to 1,285.85. The benchmark closed with a loss of more than 7% last week, as tensions rose ahead of the Crimea vote.

Other European benchmarks were also rising after sharp losses last week, with Germany's DAX 30 index up 1.4% at 9,180.89 and France's CAC 40 index 1.3% higher at 4,271.96. The U.K.'s FTSE 100 index added 0.6% to 6,568.35.

Among notable movers, shares of RWE AG picked up 1.3% after the German utility firm said it plans to sell its oil- and gas-production unit to Russian billionaire Mikhail Fridman in a transaction valued at more than 5 billion euros ($7 billion).

At the other end of deal making, Vodafone Group PLC (VOD) put on 1.7% after the U.K. telecoms firm reached an agreement to buy Spanish cable operator Ono SA for just over EUR7 billion, including debt.

In the U.K., home builders posted solid gains after U.K. Chancellor of the Exchequer George Osborne on Sunday said he'd extend the Help-to-Buy scheme until 2020. Shares of Taylor Wimpey PLC gained 2.1%, Crest Nicholson Holdings PLC added 4.3%, and Barratt Developments PLC picked up 3.1%.

Shares of Siemens AG (SI) climbed 3.4% after J.P. Morgan Cazenove upgraded the German conglomerate to overweight from neutral.

Voestalpine AG rallied 5.6% after Credit Suisse lifted the Austrian steelmaker to outperform from neutral. The analysts said that with 30% up to the target price, the current share level makes an attractive entry point.

In data news in Europe, fresh Eurostat numbers showed the euro zone's annual inflation rate was lower in February than initially estimated. Consumer prices rose 0.7% last month, a downward revision from the 0.8% "flash" reading. The revision means euro-zone inflation has dropped further below the European Central Bank's target of just under 2%, which could add more pressure on the central bank to cut rates or otherwise loosen policy at its April meeting.

ECB President Mario Draghi last week expressed concerns that the strong euro could wreck the region's fragile economy and pull down inflation, signaling a willingness to add stimulus measures to fight off deflationary pressures. The euro (EURUSD) on Monday traded at $1.3923, up from $1.3910 late Friday, and up more than 6% against the dollar over the past 12 months, according to FactSet data.

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