European stocks rally as oil falls on hopes for US-Iran deal

European shares rallied at open on Friday, with all major indexes gaining more than 1%, as oil prices slipped on hopes for a diplomatic breakthrough in the Middle East.

Brent crude fell more than 2%, extending the previous session’s losses, after US President Donald Trump cancelled plans to strike Iran, reducing fears of an escalation of hostilities.

The pan-European STOXX 600 index advanced 1.2% to 628.81 points by 0720 GMT and was set for a 1% weekly gain.

All sectors except energy rose.

The benchmark snapped a four-day losing streak on Thursday, as investors digested the European Central Bank’s rate hike and largely looked past escalating rhetoric around the US-Iran conflict.

Travel and leisure stocks led sectoral gains with a 3.4% rise, with Lufthansa and Air France jumping 4.6% and 5.7%, respectively.

Banks gained 2.3%, with Barclays and Standard Chartered climbing more than 2%.

AI equipment makers Legrand and Schneider Electric climbed 1% and 1.4%, respectively.

Novo Nordisk added 0.4% after Britain’s medicine regulator approved the drugmaker’s weight-loss pill on Thursday, making the UK the first market in Europe where patients can access the oral treatment.

Among other movers, online gaming operator Entain rose 3.2% after Barclays upgraded the European gaming sector to “market-weight”.

On the data front, German inflation eased slightly to 2.7% in May, while Britain’s economy contracted by 0.1% in April.