FRANKFURT: European shares settled higher after a choppy session on Tuesday, as investors weighed hopes of de-escalation in the Middle East war against concerns of long-term economic harm.
The pan-European STOXX 600 rose 0.4 percent to 579.28 points, after falling as much as 0.7 percent earlier in the session.
Telecom and energy stocks led the advance with gains of 2.5 percent and 2.4 percent, respectively. Defence shares fell 1.1 percent, while financials slipped 0.7 percent.
Oil price-sensitive travel and leisure sector, one of the hardest hit during the recent selloffs, inched 0.1 percent higher.
Markets have swung between gains and losses this week, whipsawed by rapid shifts in rhetoric between Washington and Tehran.
On Monday, US President Donald Trump said Washington had already had “very, very strong talks” with Tehran more ?than three weeks into the war, but Iran has publicly denied this. The Strait of Hormuz, which carries one-fifth of the global oil trade, has largely been shut since the war began. In recent days, energy infrastructure in the Middle East has come under attack as well, sparking a fresh bout of uncertainty.
“The baseline scenarios for energy price outcomes have shifted higher. The risks in either an escalation or de-escalation scenario are higher than before because the disruption has moved past the Strait to production,” Morgan Stanley analysts wrote.
European economies rely heavily on oil imports and a sustained supply shock could push regional inflation higher.
The impact of the war was seen in a survey that showed euro zone private sector growth slowed sharply in March. Similar surveys in Germany showed that the private sector grew at its weakest pace in three months, while France’s contracted at its fastest pace since October.
“Dovish policymakers will use the data to argue for caution in tightening too quickly, too soon, but we think their pledges will fall on deaf ears as the inflation data roll in,” said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics.
Markets are pricing in at least two 25-basis-point rate hikes from the European Central Bank in 2026, a sharp contrast from before the conflict, when policymakers were expected to keep rates unchanged through the year.
Among individual stocks, Puig jumped 13 percent after Estee Lauder and the Spanish beauty group announced they were in talks regarding a potential merger.
Italy’s largest mobile telecom towers company, INWIT , soared 9.9 percent on reports of a takeover bid. On the flip side, Bellway tumbled 17.5 percent after the homebuilder trimmed its operating margin outlook for fiscal 2026.
Software maker SAP fell 4 percent after J.P. Morgan downgraded the stock to “neutral” from an “overweight” rating, dragging Germany’s DAX index 0.1 percent lower.
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