European shares edged higher on Thursday as falling oil prices shifted investor focus toward weakening demand, while U.S.-Iran peace efforts remained stalled and disruption to shipping through the Strait of Hormuz persisted.
The pan-European STOXX 600 (.STOXX) was up 0.2% at 660.57 points by 0830 GMT. The benchmark retreated from record highs in the previous session.
Britain's FTSE 100 (.FTSE) fell 0.3% despite the UK economy unexpectedly expanding in June, offering some reassurance over the domestic growth outlook.
"June might well prove to be the last real sweet spot for the UK economy this year," said Danni Hewson, head of financial analysis at AJ Bell.
She warned that uncertainty around the Iran war, energy prices and potential budget measures could weigh on business confidence in the months ahead.
Meanwhile, U.S. inflation data released on Wednesday broadly matched expectations, easing concerns over the possibility of a near-term Federal Reserve rate hike. Still, sentiment in Europe remained subdued, with little progress in talks over the blockaded Strait of Hormuz and a U.S.-Iran peace deal.
"The real problem at the moment is how to price in what's going on in the Middle East. The market has month after month priced the war as coming to an end imminently," said David Morrison, senior market analyst at Trade Nation.
Iran and the United States remain at loggerheads over efforts to agree a permanent end to the war in the Gulf, according to a senior Iranian source, who said there had been no progress in talks to revive the interim deal agreed in June and define a time frame to implement it.
Oil prices fell on Thursday after forecasters lowered their outlook for global demand this year, citing the broader economic fallout from the Middle East war.
Europe's energy sector (.SXEP) dropped 0.7%, while travel and leisure stocks (.SXTP) gained 0.6% as lower fuel costs brightened the outlook for the sector.
Banking sector (.SX7E) led gains, rising 1.2%, while basic resources (.SXPP) was the weakest sector, falling 2.9% as prices for precious and industrial metals declined.
Among other earnings-driven moves, Maersk (MAERSKb.CO) rose 4.6% after the Danish shipping group smashed profit forecasts and raised its full-year earnings guidance for a second time this year as the Middle East conflict and strong demand pushed freight rates higher.
Adyen (ADYEN.AS) was among the top gainers on the STOXX 600, jumping 12.2% after the Dutch payments firm, whose clients include Spotify and Microsoft, lifted its annual revenue growth forecast.
