European equities edged higher on Friday, notching up a third straight week of gains as cautious optimism ahead of U.S.-Iran weekend talks outweighed frictions in a fragile ceasefire.
The pan-European index STOXX 600 (.STOXX) ended 0.4% higher at 614.84 points. The index is up 3% for the week.
Most bourses also gained, with France's CAC 40 (.FCHI) and Spain's IBEX 35 (.IBEX) adding 0.2% and 0.6%, respectively.
European shares logged their strongest one-day rise in more than four years on Wednesday on news of a U.S.-Iran ceasefire, helping the STOXX 600 claw back some of the losses incurred since hostilities began on February 28.
"Investor sentiment continues to fluctuate amid uncertainty about the durability of the two-week Middle-East ceasefire agreement," said Mark Haefele, chief investment officer at UBS Global Wealth Management.
"While volatility is likely to remain in the near term, we continue to believe that exposure to structural trends will remain a key differentiator for equity market performance over the long run," he added.
Investors will closely monitor the talks, especially efforts to reopen the Strait of Hormuz, a vital waterway for global energy supplies. Europe's airport industry has warned that the continent could face a systemic jet fuel shortage within three weeks if it remains closed.
STOXX 600 companies are expected to report growth of 4.2% in first-quarter earnings, according to LSEG data, slightly higher than the 4% rise estimated last week.
Meanwhile, the aerospace and defence index (.SXPARO) fell 2.2% after a Bloomberg report that Ukraine and Russia were heading toward a potential deal.
Germany's Rheinmetall (RHMG.DE) and Hensoldt (HAGG.DE) and Italy's Leonardo (LDOF.MI) fell more than 5% and CSG (CSG.AS) was off by 8%.
Construction stocks gained with Buzzi (BZU.MI), Holcim (HOLN.S) and Heidelberg Materials (HEIG.DE) up between 3% and 5.6%. Financials (.SX7P) and tech shares (.SX8P) boosted the index, with gains of 1.3% each.
Europe's luxury sector (.STXLUXP) gained 0.9% after Italy's Brunello Cucinelli (BCU.MI) rose 5.3% on first-quarter revenue above expectations.
Among other movers, Sodexo (EXHO.PA) shares fell 10% to a six-year low after the French food caterer slashed its annual sales and profitability targets.
