By Sudeshna Ghoshal
Sept 25 (Reuters) - European shares were on track to snap a three-week losing streak on Friday as oil prices retreated, although investors remained cautious about developments in the Middle East and surging bond yields.
The pan-European STOXX 600 rose 0.6% to 640.43 points by 0821 GMT, putting the benchmark on course for a nearly 1% weekly advance. In the previous three weeks, the index had lost around 3%.
Oil prices fell on Friday as truce hopes outweighed Houthi attacks on Saudi
Arabia. [O/R]
Negotiators are exploring a phased path out of war that would involve Tehran reopening the Strait of Hormuz and Washington lifting its economic blockade of Iran, sources close to the talks said this week.
"Even though the conflict in the Middle East seems like it's potentially reaching a positive phase of dialogue and agreement, there's still a lot of uncertainty because we've been here before," said Daniela Hathorn, a senior market analyst at Capital.com.
Energy shares fell 0.7% and were the biggest sectoral losers.
By contrast, oil-price-sensitive airline stocks advanced, with Ryanair and Lufthansa gaining more than 2% each. The travel and leisure index rose 1.2%.
Basic resource shares rose 1.14%, on gains in Pan African Resources and Glencore PLC. UBS upgraded its rating on Glencore to "buy" from "neutral".
Euro zone government bond yields were on track for their seventh consecutive weekly rise as crude prices remained near $100 a barrel and increasingly hawkish signals from central banks pushed up expectations for policy rates.
Hathorn said further tightening by the European Central Bank could prove to be "damaging for the economy" as "growth isn't in the best position in the eurozone". The ECB lifted interest rates earlier this month.
Separately, German consumer sentiment weakened more sharply than expected heading into October, as rising energy prices soured households' income outlook, a survey showed. Germany's benchmark DAX was up 0.65%.
Among individual stocks, Finland's Konecranes jumped to the top of STOXX 600, up 6.81% after the industrial equipment maker launched a buyback programme and raised its financial targets.
Shares of banking major UBS rose 3%. A Semafor report said the bank had revived discussions to exit Switzerland.
(Reporting by Sudeshna Ghoshal in Bengaluru; Editing by Sherry Jacob-Phillips and Harikrishnan Nair)
