- France's inflation hits 27-month high; German and Italian data awaited
- Defence stocks rise on Russia-Ukraine tensions, Romania reports drone attack
- Airlines Lufthansa, Air France up as oil prices set for first weekly drop in two months
- STOXX set for small weekly rise, second-straight month of gains
May 29 (Reuters) - European shares rose on Friday and were on track to end May higher, as investors hoped that a proposed deal to extend the Middle East ceasefire and reopen the Strait of Hormuz could be finalised.
The agreement was yet to be approved by U.S. President Donald Trump, sources told Reuters, and did not address more complex issues such as Iran's nuclear programme.
The pan-European STOXX 600 was up 0.45% at 627.93 points, as of 0845 GMT, and poised to end the week higher.
The benchmark index had come within striking distance of record highs earlier this week, and is on course for a second consecutive monthly gain, but escalating tensions in the Middle East capped further advances.
The region's smaller exposure to technology stocks have resulted in European stocks playing catch-up to peers in Asia and the United States.
Asked whether a resolution of the Middle East conflict could trigger a rally in European stocks, Marija Veitmane, head of equity research at State Street said, "The answer to that is still a no."
"Structurally, the demand destruction is still there. We expect rate hikes to happen now and that will hurt the ability of European companies to get more profitable. So I would be kind of moderately optimistic."
Prices of crude oil, a key resource for energy-deficient Europe, slipped and were on track for their first weekly drop in two months.
Airlines stocks sensitive to energy prices such as Lufthansa and Air France added over 2% each, while consumer discretionary stocks such as luxury added 1.8%.
Elevated energy prices have begun feeding through to consumers, as a preliminary estimate from France showed inflation accelerated to a 27-month high in May. Inflation readings from Germany are due later in the day.
European Central Bank policymakers such as Isabel Schnabel have flagged the need for an interest rate hike next month, while investors are pricing in borrowing costs to rise by a total of 50 basis points by year-end, according to LSEG-compiled data.
Defence stocks were among top sectoral gainers with a 1.5% climb. Tensions were high between Russia and Ukraine, and Romania said a drone injured two people in a southeastern city during an overnight Russian attack on Kyiv.
Defence stocks tend to rise when geopolitical tensions escalate, as investors anticipate stronger near-term demand for military equipment and services.
CTS Eventim jumped 10% after the German ticket firm said its revenue grew by 23% in the first quarter of 2026, driven by strong demand for live entertainment.
Reporting by Johann M Cherian in Bengaluru; Editing by Sherry Jacob-Phillips and Joyjeet Das
Source: Reuters