European shares edged higher on Tuesday with banking stocks in the lead as investors took comfort from signs of de-escalation in the Middle East, while GSK fell after agreeing to acquire U.S.-based Nuvalent for $10.6 billion.
The pan-European STOXX 600 index (.STOXX) edged 0.5% higher to 624.78 points by 0846 GMT, with EURO STOXX Banks (.SX7E) leading sectoral gains with a 1.8% rise.
Italy's financial sector has been the focus this week after Monte dei Paschi di Siena (BMPS.MI) received two buyout proposals from rivals Intesa (ISP.MI) and Banco BPM (BAMI.MI), as the lenders sought to gain market share in euro zone's financial sector.
With an eye on competition concerns, Intesa also unveiled a separate deal to sell 635 MPS branches and the brand to insurer Unipol (UNPI.MI).
MPS gained 2.5% on Tuesday, BPM and Intesa added 2.8% each, while BPER Banca (EMII.MI) and Unipol added 4.2% and 5.9%, respectively.
Investors also kept an eye on developments in the Middle East after Iran and Israel halted attacks on each other, though caution prevailed as diplomatic talks so far have failed to deliver a lasting peace and the Strait of Hormuz, a vital artery for global oil supplies, remains shut.
Inflation concerns have had markets price in a 25-basis-point interest rate hike by the European Central Bank at the meeting on Thursday, but the focus will be on the monetary policy path ahead.
"The markets have been moving in a holding pattern for the last week or two, with what's happening in the Middle East and smaller impact from some of the AI driven volatility that we're seeing in Asian and U.S. markets," said Craig Cameron, portfolio manager at Franklin Templeton.
"For now the market is feeling like there are enough pushes and pulls to sort of balance each other out."
Healthcare stocks (.SXDP) declined the most among sectors, off 0.4%. GSK (GSK.L) lost 3.2% after the British drugmaker agreed to acquire Nuvalent (NUVL.O), as the UK company seeks to expand its lung cancer portfolio.
UBS (UBSG.S) rose 2%. A Reuters report said that Swiss lawmakers are considering a new pitch to soften capital requirements on the lender that could shave billions of dollars off the burden the bank is facing.
Meanwhile, German industrial production rose more than expected in April and exports unexpectedly rose.
