European shares edge up as US stalls its Middle East moves

By Sanchayaita Roy, Purvi Agarwal and Ragini Mathur

(Reuters) -European stocks snapped a three-day losing streak and closed higher on Friday, as investors' nerves eased following a stall in U.S. involvement in Middle East tensions.

The pan-European STOXX 600 closed 0.1% higher.

As Israel and Iran's air conflict entered its second week, European officials worked to bring Tehran back to diplomatic negotiations as Iranian Foreign Minister Abbas Araqchi arrived in Geneva for talks.

The White House signalled President Donald Trump will decide within two weeks whether to throw U.S. support behind Israel in the ongoing conflict, a move that buoyed market sentiment and reignited some appetite for risk assets, which had been battered earlier in the week amid uncertainty over the conflict's duration.

Despite Friday's modest gains, European stocks logged a second consecutive week of losses, as investors continued to fret over the potential global fallout from unrest in the Middle East.

"The uncertainty around the conflict means the risk of energy prices being higher," said Franziska Palmas, senior Europe economist at Capital Economics.

She added that higher energy prices could prompt the European Central Bank "to keep rates at their current level rather than cutting them further."

With the July 8 U.S. tariff-pause deadline looming, movement on trade deals with Washington has shown little progress, save for a formal agreement reached with London. European Commission President Ursula von der Leyen remains hopeful for a broader deal by July 9.

Meanwhile, BofA Global Research raised its year-end target for the STOXX 600 to 530 from 500 on resilience in global growth following a U.S.-China trade deal.

Travel and leisure stocks were up nearly 1%, led by a 6.5% gain in Europe's largest travel operator TUI after Barclays upgraded the stock to "overweight" from "underweight".

Energy shares lagged 0.6% as oil prices retreated, though the sector was the week's second-biggest gainer due to Middle East tensions that had boosted crude prices earlier.

On the day, the insurance sector emerged as the top sectoral gainer, up 1.3%.

Among other stocks, London's Berkeley was the biggest percentage decliner, down 8.1%. The homebuilder named current finance chief Richard Stearn as its new CEO, but reported an annual pre-tax profit slightly ahead of market expectations.

Stora Enso jumped 14.7% to the top of the STOXX 600 after the Finnish forestry group announced a strategic review of its Swedish forest assets worth EUR 5.8 billion, including potential separation and public listing.

Markets in Sweden and Finland were closed for a public holiday.

(Reporting by Sanchayaita Roy, Purvi Agarwal, Ragini Mathur and Pranav Kashyap in Bengaluru; Editing by Eileen Soreng, Janane Venkatraman and Chris Reese)