Europe's benchmark STOXX 600 hovered near a record high on Friday and was set for its biggest weekly gain in over a month, underpinned by gains in cyclical stocks and as investors pushed back expectations for an imminent U.S. interest rate hike.
The pan-European STOXX 600 (.STOXX) briefly hit a record high earlier in the session and was last up 0.2% at 649.86 points by 0806 GMT. The index was set for its biggest weekly rise since mid-May. Germany's DAX index (.GDAXI) also notched an all-time high and was up 0.5%.
German industrial group Siemens (SIEGn.DE) jumped 1.7% and was the biggest boost to the DAX after brokerage Kepler Cheuvreux upgraded the stock to "hold" from "reduce".
Defence stocks (.SXPARO) were marginally higher as Russia bombarded Ukraine with its deadliest strike this year. Investors anticipate more defence spending and output in times of geopolitical tensions.
Defence stocks have seen the strongest gains this week, along with cyclicals such as industrials (.SXNP), banks (.SX7E) and financial services (.SXFP) as the rally, previously concentrated in tech stocks, broadened, aided by easing Middle East tensions.
Earlier this week, Euro zone data indicated that inflation rose at a slower-than-expected pace in June and European Central Bank President Christine Lagarde said that risks to inflation and economic growth were now more balanced than a few weeks earlier.
"While ECB speakers have generally tried to hang on to a hawkish tone, President Christine Lagarde and others have conceded that the policy response may not need to be that aggressive from here," ING Bank said in a note.
"Lower-than-expected June CPI this week and oil prices staying stubbornly low mean that some second-round effects on core inflation may well be needed for the ECB to hike again."
Traders now see the ECB hiking rates by a total of 23 basis points this year, LSEG data showed.
Tech stocks (.SX8P) logged their biggest quarterly gain since 2001 on Tuesday, owing to the AI-led global rally. On Friday, chip stocks Soitec (SOIT.PA) and Aixtron (AIXGn.DE) gained 4.1% each, while BE Semiconductor added 3.6%.
French voucher and benefits company Pluxee (PLX.PA) gained 5.3% after posting a smaller-than-expected drop in organic sales in the third quarter.
Personal & Household Goods (.SXQP) led sectoral declines, with L'Oreal <OREP.PA down 2.6% as J.P.Morgan said it expects to see a weaker second half for the cosmetics maker.
Trading volumes are expected to be thin on account of a U.S. public holiday.
