By Sudeshna Ghoshal
Oct 6 (Reuters) - European shares rose towards one-week highs on Tuesday, buoyed by gains in healthcare stocks after Genmab's upbeat drug-trial results, while euro zone bond yields took a breather after rallying on fiscal and inflation concerns.
The pan-European STOXX 600 index was up 0.8% to 638.67 points by 0835 GMT, poised for a third straight session of gains.
Genmab climbed 7.7% to a three-year high after the Danish biotech firm and US drugmaker AbbVie's combination treatment
for patients newly diagnosed with a type of lymphoma reduced the risk of disease progression or death in a late-stage study.
The broader healthcare index was up 1.4%, leading sectoral gains in Europe.
Attention now turns to euro zone retail sales data due later, which could offer clues about the region's consumer spending.
Data also showed UK construction activity fell in September, but the decline was the smallest since January.
The euro hovered near a 17-month low, weighed down by worries over France's high debt burden and a political gridlock. Political uncertainty in the region deepened after Spanish Prime Minister Pedro Sanchez called a snap election on Monday.
"A new 2027 budget now looks unlikely, meaning Spain may again roll over its previous budget, keeping fiscal policy broadly steady and debt-to-GDP on a declining path," Danske Bank analysts said in a note.
"We do not expect a near-term impact on growth or public finances, supported by strong employment and consumption, though tighter immigration policy could weigh on medium-term potential growth."
Euro zone bond yields eased, having touched multi-decade highs last week. The spread between French and German 10-year yields narrowed further from its peak of last Friday as investors assessed whether the recent surge in France's risk premium had gone too far, too quickly.[GVD/EUR]
Persistently high rates raise borrowing costs for companies and mortgage holders, while increasing governments' interest burdens.
MARKETS SCALE BACK ECB TIGHTENING BETS
The recent turmoil in bond markets have prompted investors to dial back their expectations for interest rate hikes from the European Central Bank.
Markets are now pricing in an 80% chance of another rate hike by the end of the year. They had been pricing in at least three more hikes by the March meeting but now are just fully pricing in one hike and around an 80% chance of a second.
Among other stocks, Italy's Technoprobe gained 4.5% after J.P.Morgan initiated coverage on the stock with an "overweight" rating.
Spain's property developer Neinor Homes advanced 4.2% after raising its 2026-2027 outlook, unveiling 2028 targets and announcing a planned €200- €250 million ($225-$281 million) dividend for 2028.
(Reporting by Sudeshna Ghoshal in Bengaluru; Editing by Mrigank Dhaniwala and Tasim Zahid)
