By Tharuniyaa Lakshmi and Purvi Agarwal
July 27 (Reuters) - European shares climbed on Monday, as a pause in U.S.-Iran hostilities over the weekend sent oil prices lower and boosted risk appetite, ahead of a pivotal week of earnings from major U.S. tech companies.
The pan-European STOXX 600 index was up 0.7% at 648.9, as of 0850 GMT, having touched its highest since July 7.
Brent crude futures dropped 6% to around $90 a barrel, after Washington paused its bombing campaign over arsenal deletion concerns,
and Iran said it would do the same if the U.S. did.
Travel and leisure stocks were among the biggest gainers, up 2.3%, as lower oil prices boosted the outlook for airlines. Shares of Lufthansa, IAG and Ryanair added about 3% each.
Energy stocks lost 2%, making them the top decliners on the STOXX 600. [O/R]
"How the situation will develop is unclear, and the risk of further escalation remains high... A retest of oil price highs from earlier this year cannot be ruled out should military actions intensify," said UBS analysts in a note.
However, global markets welcomed the de-escalation with Asian markets and Wall Street futures edging up. The resumption in hostilities recently had heightened inflation concerns, especially in energy import-heavy regions such as Asia and Europe.
Against this backdrop, the statement after the U.S. Federal Reserve's rate decision on Wednesday will be scrutinised for hints on policymakers' next move.
Markets are expecting the central bank to hold interest rates steady, while they price in a 25-basis-point hike by the end of 2026, with an over 60% chance for a second, according to LSEG-compiled data.
Results from U.S. Big Tech companies, including Microsoft, Meta Platforms, Amazon.com and Apple will be parsed for signs on whether the AI-driven rally has further room to run.
The STOXX 600 technology index was up 2.4% on Monday, as SAP extended Friday's gains with a 5.5% jump.
"Markets have priced AI quite fully... the capital is now not just focusing on AI core, but also going to the next layers because hopefully it will alleviate a bit of that (expectations) pressure," said Claire Trachet, Founder and CEO of Trachet.
"The market is so tense that any reaction creates a big bump instead of being a bit more absorbed."
In Europe, AstraZeneca gained 1.3% after the drugmaker topped second-quarter profit expectations and reaffirmed its 2026 forecasts.
Vodafone advanced about 4% after the telecom firm raised its outlook following its Safaricom deal, and said it expects to deliver results at the upper end of its revised range.
Zabka fell to the bottom of the STOXX 600, with a 10.5% loss after Japan's Seven & i Holdings decided not to proceed with a potential investment in the Polish convenience store.
(Reporting by Tharuniyaa Lakshmi and Purvi Agarwal in Bengaluru; Editing by Sherry Jacob-Phillips, Amanda Cooper and Vijay Kishore)
