Europe close: Stocks manage gains on hopes of Iran talks

(Sharecast News) - European shares ended higher on Wednesday as investors briefly welcomed reports suggesting potential back-channel contact between Iran and the United States over the escalating conflict in the Middle East, even though Tehran later reportedly rejected the claims.

"European and US stock indices trimmed some of Tuesday's losses amid hopes of easing tensions in the Middle East," noted Axel Rudolph, chief technical analyst at IG.

The pan-European Stoxx 600 rose 1.37% to close at 612.71.

Germany's DAX gained 1.74% to 24,205.36, while France's CAC 40 advanced 0.79% to 8,167.73.

London's FTSE 100 added 0.8% to finish at 10,567.65.

Russ Mould, investment director at AJ Bell, said "the FTSE 100 and other European markets took their cue from US gains to trade firmly higher, with some of the names caught up in the heavy selling at the start of the week bouncing back from their lows," adding that the rebound served as "a salutary reminder to investors caught up in the recent volatility that ups and downs are a natural feature of financial markets."

Sentiment was supported earlier in the session by a report from the New York Times, citing unnamed officials, that operatives from Iran's Ministry of Intelligence had reached out through another country's spy agency to the CIA shortly after hostilities began with an offer to discuss terms for ending the war with the US and Israel.

"Unconfirmed reports that Iran has privately reached out to the US to discuss terms for ending their escalating conflict was one of the factors helping to restore a measure of calm to global markets on Wednesday afternoon," Mould said.

The report said US officials were sceptical that either side was ready for an immediate off-ramp, while Israeli officials, who favour a prolonged campaign to weaken Iran's military capabilities and destabilise its government, urged Washington to ignore the approach.

Meanwhile, counterstrikes from Iran and allied Hezbollah forces against several Gulf states heightened fears of supply disruptions, driving oil prices to their highest level in six years.

Iran's Revolutionary Guard threatened to target any vessel attempting to pass through the Strait of Hormuz, though US president Donald Trump said the US International Development Finance Corporation would offer insurance to shipping and provide naval escorts if required.

Mould noted that US Treasury Secretary Scott Bessent also outlined measures aimed at reopening the strategically important waterway, "through which around 20% of the world's oil and gas passes."

Rudolph said the improvement in sentiment was also aided by stronger economic indicators.

"Positive data such as US private employment rising more than expected and services growth hitting over three-year highs also helped shift momentum," he said, adding that "in Europe, producer prices rebounded sharply in January, though."

Private sector activity accelerates in eurozone

Economic data released during the session showed private-sector activity in the eurozone accelerated in February.

The composite purchasing managers' index from Hamburg Commercial Bank and S&P Global rose to 51.9, in line with the preliminary estimate and up from 51.3 in January, marking the strongest pace of expansion in three months and extending the run of growth to a 14th consecutive month.

The increase was driven by faster growth in new orders, largely from domestic demand rather than exports, with Germany posting a four-month high and solid expansions also recorded in Ireland and Italy.#

Cyrus de la Rubia, chief economist at HCOB, said the data suggested the European Central Bank was unlikely to plan additional interest-rate cuts in the near term.

"Costs faced by the service sector rose at a high rate once again in February.

"Higher wages, but also rising energy and transport costs, are cited as reasons for this," he said, adding that while sales-price inflation had eased, "no clear trend has emerged in recent months."

In the UK, services activity expanded for a tenth straight month in February, though firms continued to reduce staffing levels.

The S&P Global services PMI business activity index registered 53.9, slightly below January's five-month high of 54.0 but remaining comfortably above the 50 threshold that separates expansion from contraction.

Staffing numbers declined for a seventh consecutive month as companies attempted to offset higher operating costs.

Tim Moore, economics director at S&P Global Market Intelligence, said business activity continued to strengthen, supported by rising domestic demand, though export orders remained subdued.

He added that firms were responding to sharply rising input costs - particularly payroll, food and technology expenses - by raising prices at a robust pace.

Across the Atlantic, US private-sector employment rose by 63,000 in February, according to ADP, marking the strongest increase since July 2025 after January's gain was revised down to 11,000.

Hiring was led by education and health services, which added 58,000 jobs, while construction created 19,000 roles.

However, professional and business services shed 30,000 jobs, manufacturing lost 5,000 positions and trade, transportation and utilities declined by 1,000.

ADP chief economist Dr Nela Richardson said hiring remained concentrated in a limited number of sectors, noting that the pay premium for workers switching jobs fell to a record low in February.

Vestry slumps as ASMI jumps

In equities, UK housebuilder Vistry slumped 25.63% after warning that margins would come under pressure this year and announcing the retirement of its chief executive and chair.

Adidas fell 3.6% following the release of its annual results, while Redcare Pharmacy dropped 21.01% after reporting fourth-quarter earnings that missed expectations.

On the upside, semiconductor equipment supplier ASM International rose 5.04% after posting better-than-expected net profit for the final quarter of 2025, supported by stronger demand and a rebound in orders from China.

Italian gaming group Lottomatica surged 14.95% after proposing a new �700m share buyback programme.

Reporting by Josh White for Sharecast.com.