(Sharecast News) - European shares gave up some earlier gains but still finished higher on Tuesday, following record closes on Wall Street and in Tokyo, as investors took encouragement from cautious optimism around the US-Iran peace deal.
The pan-European Stoxx 600 rose 0.26% to 636.06.
Germany's DAX gained 0.08% to 24,914.76, France's CAC 40 advanced 0.75% to 8,447.27, and London's FTSE 100 climbed 0.61% to 10,494.21.
In commodities, Brent crude futures were last down 4.22% on ICE at $79.66 per barrel, while the NYMEX quote for West Texas Intermediate dropped 5% to $76 71.
Kathleen Brooks, research director at XTB, said stock markets in Europe were gaining momentum after Monday's relief rally, which was triggered by hopes that the US and Iran would sign a deal to end the war and reopen the Strait of Hormuz by the end of the week.
"Although the deal has not been formally signed, there already appears to be a peace dividend for markets," she said.
"US indices closed at record highs on Monday, along with a fresh record high for the Eurostoxx 600 index.
"The drop in the oil price and a significant decline in bond yields are also boosting the outlook for stocks."
David Morrison, senior market analyst at Trade Nation, said European indices were stronger across the board on Tuesday, with sentiment improving markedly from the previous week, when it had looked as if the ceasefire between the US and Iran was on the verge of collapse.
"Now it seems as if the two countries are on the brink of agreeing terms to end the conflict which is now well into its fourth month," he said.
"Oil prices are down again, with both Brent and WTI trading at three-month lows.
"Traders are pricing in the reopening of the Strait of Hormuz as the most immediate and positive result of any peace deal."
US president Donald Trump said the Strait of Hormuz could reopen as early as Friday, although Tehran has not confirmed the timing.
The prospect of renewed traffic through the key waterway weighed on crude prices and helped support risk appetite.
Morrison said the biggest story remained the prospect of an end to hostilities between the US and Iran, leading to the reopening of the Strait of Hormuz.
"As usual, there's plenty of bluster and noise around the deal from the US side," he said.
"And there's also a lack of clarity over what's been agreed and what has been left for another day.
"From a trader's perspective, the foremost consideration must be the Strait of Hormuz.
"And a brief glance at the oil price suggests that whatever else, crude traders are convinced that the Strait will soon be open, one way or another."
However, Morrison said it remained unclear whether passage through the strait would be "toll-free", as the US has promised, or subject to a fee, which still appeared to be Tehran's position.
Brooks also warned that the reopening of the Strait of Hormuz was unlikely to be immediate, even if a deal was signed.
"The oil price is continuing to fall, even though some oil tanker bosses are expressing caution about reopening the Strait of Hormuz," she said.
"Bosses of the world's biggest shipping companies want to see more than just an agreement in place, mines need to be swept, and all hostilities must end, before tankers with hundreds of millions of dollars' worth of cargo will be able to traverse the Strait without fear of a flare up in tensions that could close the Strait mid-voyage."
German investor sentiment improves unexpectedly
On the economic front, German investor sentiment unexpectedly improved in June amid hopes that the Middle East conflict was nearing an end.
The ZEW economic expectations index rose to 10.5 from -10.2 in May, comfortably ahead of expectations for -6.0. However, the current situation index weakened to -81.0 from -77.8.
ZEW president Achim Wambach said financial market experts expected the Iran conflict to be nearing an end, which would ease pressure on energy prices and inflation, benefit energy-intensive industries and households, and strengthen domestic demand.
The Bank of Japan raised its policy rate to 1.0% from 0.75%, the highest level since 1995 and in line with expectations.
The vote was split 7-1, with governor Kazuo Ueda absent due to hospitalisation and newly appointed Toichiro Asada dissenting.
The BoJ also said it would keep bond purchases unchanged at around JPY 2trn per month.
The central bank warned that inflation could rise above its 2% target, with the pass-through from higher crude prices progressing "at a relatively fast pace" in business transactions and potentially spreading to consumer prices.
It said Japan's economy had recovered moderately, although weakness remained in part due to the Middle East situation, while government measures to ease the household burden from energy costs and efforts to secure alternative raw material supplies were helping to reduce downside risks.
Australia's central bank left interest rates on hold at 4.35% but warned that it remained prepared to tighten policy again if inflation persisted.
The Reserve Bank of Australia kept rates unchanged as activity slowed and unemployment reached a four-year high, after three rate increases already this year.
Governor Michelle Bulloch said inflation remained too high and that leaving rates on hold would allow policymakers to assess how previous increases were feeding through the economy.
Redcare, UniCredit make gains
In equity markets, Redcare Pharmacy rose 6.89% after lifting its 2026 outlook on Monday.
UniCredit gained 4.17% after the German government rejected its multibillion-dollar bid for Commerzbank.
Commerzbank itself rose 0.25%.
Reporting by Josh White for Sharecast.com.
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