By Twesha Dikshit
May 19 (Reuters) - European shares advanced on Tuesday after investors welcomed news that the U.S. had paused an attack on Iran following Tehran's latest peace proposal, with the chances of a deal seeming close.
U.S. President Donald Trump said there was now a "very good chance" of reaching a deal limiting Iran's nuclear program. Oil prices fell as much as 2% even as they remained over $100 a barrel, while bonds steadied after a steep selloff in the past few sessions.
The pan-European
STOXX 600 rose 0.8% to 614.83 points, as of 0806 GMT, but continues to trade below prewar levels. Other regional markets were also higher, with Germany's DAX and France's CAC 40 adding 1.1% and 0.8%, respectively.
European equities have lagged behind global peers, with the region's dependence on oil imports weighing on markets, while U.S. and global markets have rebounded on artificial intelligence-led optimism.
A sell-off in global bonds has also weighed, as investors price in at least two hikes from the European Central Bank by the end of the year.
"We do not expect higher yields to derail the positive outlook while growth remains resilient," said Mark Haefele, chief investment officer at UBS Global Wealth Management.
"While potentially higher interest rates may dampen consumer spending at the margin, they are unlikely to curtail long-term government and corporate spending that underpins growth and company profits."
The AI trade and the tech rally will face a test on Wednesday when the world's most valuable company, Nvidia, reports its quarterly results.
The tech index moved higher. Lagercrantz rose 8.2% after the Swedish firm posted better-than-expected fourth quarter earnings. Software companies SAP and Dassault Systems gained 5.3% and 3.5%, respectively.
Defense shares led sectoral gains, up 2.5%. Saab advanced 5.3% after Sweden is set to buy navy frigates from France for over $4 billion. Germany's Hensoldt and Rheinmetall added 7% and 4.6%, respectively.
Industrials and Banks were 1.2% and 0.5% higher, aiding the broader index.
Evolution jumped 11.2% after the Swedish online casino provider launched a share buyback programme of 2 billion euros ($2.4 billion).
Vallourec tumbled 7.8% after ArcelorMittal sold a 10% stake in the French steel tubes maker at a discount.
Meanwhile, European Union negotiators were expected to agree later in the day to scrap import duties on U.S. goods to comply with a U.S. trade deal and prevent Trump from acting on his threat of raising tariffs.
(Reporting by Twesha Dikshit; Editing by Janane Venkatraman and Rashmi Aich)
