European shares climb to over two-month highs on Iran-US peace optimism

By Johann M Cherian

May 25 (Reuters) – European shares hit their highest in more than two months on Monday, buoyed by signs Iran and the U.S. were negotiating an end to their conflict, easing concerns about ​inflation and a global economic slowdown.

The pan-European STOXX 600 was up 0.67% ‌at 629.28 points at 0818 GMT, just shy of a record high touched in late February, before the Middle East war erupted.

Most sectors gained, led by banks with a 1.9% jump. Airlines also advanced, with Lufthansa and Air France KLM up 3.7% and 7.5%, respectively, as Brent ‌Crude slid ​4.7% to $98 a barrel.

While Tehran and Washington sought ⁠to temper expectations of an ⁠imminent breakthrough, investors focused on U.S. President Donald Trump’s comment on Saturday that a framework to reopen the Strait of Hormuz had been “largely negotiated”.

Clarity remains limited on key sticking points, including Iran’s nuclear programme.

“Contentious issues like Iran’s nuclear plans, ​its uranium enrichment and the control of the Strait of Hormuz remain potential obstacles,” said Kyle Rodda, senior financial market analyst at Capital.com.

“The ‘deal’ could be little ⁠more than an extended ceasefire, perhaps with a ⁠few details – probably relating to tankers moving through the Strait – ​being tinkered with at the margins to kick the can further down the road.”

About ​one-fifth of the world’s crude oil and natural gas typically passes through ‌the waterway, which is also vital for energy-dependent Europe. The STOXX 600 has lagged global peers on worries that higher crude prices could stoke inflation in the region.

Investors will look to inflation data from major euro zone economies later this week ⁠for clues on price pressures in May. Markets expect two European Central Bank interest rate increases of 25 basis points each by year-end, according to LSEG data.

Among individual stocks, ⁠Delivery Hero jumped 11% ‌to an 18-month high after a report said Uber’s board ⁠met on Saturday to discuss raising its offer for the ​German food-delivery ‌group, following a rejection by a major shareholder of ​a bid valuing ⁠the company at more than 11.5 billion euros ($13.4 billion).

Meanwhile, tensions escalated in Ukraine as Russia pounded Kyiv and surrounding areas. Defence stocks gained 1.5%.

Energy stocks underperformed, tracking the slide in crude prices.

Trading volumes are expected to be light, with U.S. and UK markets closed for public holidays.

(Reporting by Johann M Cherian in Bengaluru. Editing by Sherry ​Jacob-Phillips and Mark Potter)