European shares held their ground on Wednesday, as investors clung to hopes for peace in the Middle East despite tensions flaring up again, while focus was also on the European Central Bank's upcoming monetary policy decision.
Crude oil prices hovered near $90 a barrel after one of the biggest exchanges in hostilities between the U.S. and Iran since the two countries agreed to a ceasefire in April.
Traders, however, focused on remarks by U.S. President Donald Trump that a deal to reopen the Strait of Hormuz, a vital artery for global oil supplies, was close.
"We remain optimistic that a deal will be reached in the coming weeks, even if it's a fudge that will get some traffic flowing (through) the strait," said Mohit Kumar, chief financial economist for Europe at Jefferies.
"Both the U.S. and Iran do not want to go back to a full-scale war, hence we hope that the ceasefire, though fragile, will eventually hold."
The pan-European STOXX 600 index (.STOXX) was almost flat at 618.47 points by 0826 GMT, with most sectors marginally higher.
The ECB's two-day meeting on monetary policy will start on Wednesday, at the end of which it is widely expected to raise interest rates by 25 basis points to combat rising energy costs. The bigger focus will be on policymakers' remarks on the monetary policy outlook.
A U.S. inflation report is also due later in the day, which could offer clues on the Federal Reserve's monetary policy path.
STMicroelectronics gained 1.6% after brokerage BofA Global Research upgraded the chip stock to 'buy' from 'neutral', while peer Infineon (IFXGn.DE) added 1%.
Italy's main index (.FTMIB) gained the most among regional markets, with Banco BPM (BAMI.MI) leading with a 3% rise.
The spotlight is on the country's financial sector after Monte dei Paschi di Siena (BMPS.MI) received rival buyout proposals from Intesa Sanpaolo (ISP.MI) and BPM, as the rivals battle for greater market share. Intesa and BMPS inched up 0.3% each.
Norway's Kongsberg (KOG.OL) was volatile - down 4% after gaining 3.3% in early trading - after the defence group announced revenue targets for 2029 and 2033.
