(Reuters) – European equities touched five-week highs on Monday as upbeat earnings and hopes that the European Central Bank is near the end of its rate-hike cycle offset losses in Spanish stocks after the country’s general election yielded no clear winner.

Spain’s benchmark IBEX index dropped 0.8%, having hit a near one-week low earlier, after results from Sunday’s vote denied both the left and the right bloc an easy path to form a government, pointing to a political gridlock and raising nervousness among investors.

Shares of Madrid-listed utilities, which had priced in a victory for right-wing parties, fell. Endesa and Iberdrola (OTC:IBDRY) fell 3.1% and 0.5%, respectively.

A gauge of Spanish lenders that includes Banco de Sabadell, Banco Santander (BME:SAN) and Caixabank fell 1.6%.

“Markets seem to have been caught on the hop, having expected a more definitive outcome. In the short-term, the uncertainty will weigh on Spanish assets as investors wait to see what kind of coalition emerges or whether a new election is required,” said Chris Beauchamp, chief market analyst at IG.

However, the pan-European STOXX 600 edged up 0.1% to hit a five-week high.

A survey showed the downturn in euro zone business activity deepened much more than expected in July as demand in the bloc’s dominant services industry declined and factory output fell at the fastest pace since COVID-19 first took hold.

The numbers, however, raised hopes that the ECB need not go too far in hiking interest rates to bring inflation under control.

“It does give the ECB some cover but with eurozone CPI continuing to come down from its highs, they already have the backdrop for a more dovish tone this week,” added IG’s Beauchamp.

Markets have priced in a quarter percentage point increase in interest rates to 3.75% by the ECB later this week, but what it will do after July is less certain.

Among other stocks, Bavarian Nordic tumbled 21.7% the Denmark-based company said it was ending its respiratory syncytial virus (RSV) vaccine programme.

Dutch health technology company Philips slid 6.2% as it expressed concern over China’s drive to become self-sufficient in health-related technologies.

Swiss private bank Julius Baer climbed 7.8% after it reported an 18% increase in net profit for the first half of 2023.

Boosting the telecom sector, Vodafone Group (LON:VOD) rallied 4.3% after it reported an acceleration in first-quarter top line growth, driven by strong demand in Britain and improvements in Germany, Italy and Spain