European shares edged higher on Friday, helped by gains in gold prices, but remained on track for a weekly decline as investors assessed lingering stress in global bond markets, while a diplomatic deadlock in the Gulf pushed oil prices higher and stoked inflation concerns.
The pan-European STOXX 600 (.STOXX) was up 0.2% at 652.03, as of 0826 GMT and on track for a second straight weekly decline.
Basic resources (.SXPP) led sectoral gains, rising 2.2% as a softer dollar lifted gold prices.
European equities saw a $2.44 billion inflow in the week to August 12, the largest since the week ending February 25, just before the U.S-Iran war broke out, LSEG/Lipper data shows.
Euro zone government bond yields inched lower after a week dominated by stress in global bond markets, which even intervention by the U.S. Treasury Department appeared unable to fully contain.
Investors remained focused on the Treasury market after U.S. Treasury Secretary Scott Bessent said the government could increase Treasury buybacks and raised the prospect of fiscal consolidation.
Separately, Bessent also made news by expanding on President Donald Trump's pledge of economic warfare against Iran, saying the U.S. would impose "the toughest sanctions in history" on the country.
The threats further reduced optimism over a deal to fully reopen the Strait of Hormuz, lifting Brent crude to a one-month top of $94.71, before profit-taking set in.
"Right now, you see a little bit of that uncertainty priced into oil and sentiment, but it's not quite taking hold of the narrative yet because markets are not fully buying the story that the U.S. will eventually go through with these sanctions," said Daniela Hathorn, a senior market analyst at Capital.com.
Among individual movers, Nibe Industrier (NIBEb.ST) topped the STOXX 600, up 8.4% after the Swedish heat pump maker reported second-quarter results.
Banca Generali (BGN.MI) fell 1.8% after Monte dei Paschi di Siena (BMPS.MI) launched simultaneous all-share takeover bids worth about €34 billion ($39.76 billion) for rival Banco BPM (BAMI.MI) and the wealth manager, escalating a battle that is reshaping Italy's banking sector.
($1 = 0.8552 euros)
