European stock markets spiked to all-time highs on Monday, bolstered by a jump in defense stocks, as traders assesed the outlook for potential Ukraine peace talks and calls by the U.S. for Europe to spend more on its security.

As of 08:10 ET (13:10 GMT), the pan-European Stoxx 600 had gained 0.5% to 554.96 and Germany’s DAX had risen by 1.1% to 22,720.37, touching a record high. Meanwhile, the U.K.’s FTSE 100 had edged up by 0.3% to 8,755.10 and France’s CAC 40 had advanced by 0.1% to 8,186.94.

U.S. and Russian officials are due to meet in Saudi Arabia this week to discuss possible negotiations on Ukraine peace deal.

Media reports have suggested that the high-level in-person talks -- the first of this kind between U.S. and Russian officials in years -- could be a precursor to a possible face-to-face meeting between U.S. President Donald Trump and Russian counterpart Vladimir Putin.

Ukrainian President Volodymyr Zelenskiy has noted that Kyiv was not invited to the talks in Saudi Arabia, while Ukraine's European allies have voiced concerns that they may be frozen out of the negotiations.

French President Emmanuel Macron is due to hold an emergency informal summit of European leaders in Paris on Ukraine. Prior to the gathering, France's minister for European affairs said joint European bonds should be discussed in the coming days to help the bloc better fund its defense capabilities. Analysts have also pointed to recent statements from U.S. officials as a sign that Europe may no longer be able to rely on Washington to bankroll its security.

The prospect of increased government expenditures on defense fueled an uptick in shares in firms like the U.K.'s BAE Systems (LON:BAES) and Germany's Renk, while arms manufacturer Rheinmetall (ETR:RHMG)'s stock price soared. 

Meanwhile, the threat of an imminent hit to European businesses from sweeping reciprocal tariffs by Trump showed signs of fading, with the next major development in the trade spat between the White House and the EU not expected to come until April.

Euro zone bond yields, which move inversely to prices, also ticked up, powering an increase in Europe's banking sector index to a 17-year peak. The euro edged down by 0.1% against the U.S. dollar to $1.0472 by 07:52 ET (12:52 GMT).

Markets in the U.S. are due to be closed on Monday in observance of the President's Day holiday.

Elsewhere, Germany, Europe's largest economy, is set to head to the polls this weekend in what has been referred to as one of the country's most crucial elections in years. The opposition Christian Democratic Union (CDU) party is on track to win the vote by a sizeable margin, polls have indicated, with Friedrich Merz tipped to become the next chancellor of the country.

Still, polls suggest that several parties, including the CDU, the far-right Alternative for Germany, and current Chancellor Olaf Scholz's Social Democratic Party, are close to securing at least 5% of the vote -- an important threshold parties must pass in order to be represented in Germany's national parliament.

The outcome will impact the prospects for Germany's sputtering economy, reform of a longstanding fiscal policy limiting borrowing known as the "debt brake," and European Union policy, analysts at Commerzbank (ETR:CBKG) have argued.