MILAN/FRANKFURT: European stocks edged higher on Wednesday, led by economically sensitive sectors such as banks and energy, as investors braced for a Democratic win in pivotal US Senate elections that could spur a bigger fiscal stimulus.

The pan-European STOXX 600 index was up 0.2%, while UK’s FTSE 100 rose 0.7% and Germany’s DAX gained 0.2%.

Oil majors BP, Royal Dutch Shell and Total rose between 1.6% and 3.3% as crude prices hit their highest since February 2020 following Saudi Arabia’s pledge to cut output in a meeting with allied producers.

Banks advanced 2.6%, the most among sectors, with UK’s HSBC, Spain’s Santander and France’s BNP Paribas providing the biggest boost. Construction & material stocks such as CRH and Heidelbergcement also outperformed on hopes of more infrastructure spending under a Democrat-controlled Senate. European gains were also tempered as major economies look to extend lockdowns to fight a surge in coronavirus cases, with a new virus variant spreading fast across the continent.

Germany is extending its lockdown until the end of the month, while a third national lockdown should not be ruled out in France, a senior medical expert said.

Meanwhile, IHS Markit’s survey showed economic activity in the euro zone contracted more sharply than thought at the end of 2020 and could get worse as renewed lockdowns hit the bloc’s dominant service industry.

In company news, French artificial heart maker Carmat gained 5.3% after it said it was preparing to start selling its products in the second quarter of this year. British baker and fast-food retailer Greggs jumped 6.7% as it slowed sales decline caused by the coronavirus crisis in the fourth quarter.