By Tharuniyaa Lakshmi and Purvi Agarwal
July 22 (Reuters) - European shares inched higher on Wednesday, driven largely by energy stocks, as crude oil hit six-week highs, although investors remained cautious ahead of earnings from U.S. tech firms.
The pan-European STOXX 600 index gained 0.4% to 645.83 points by 0848 GMT.
Most sectors inched higher, but oil and gas stocks were the top performers, pushing the STOXX energy index up 1.3%.
Brent crude prices rose above $91 a barrel, its highest in six weeks,
after tankers carrying Saudi oil to Asia turned back from the Red Sea following threats from Yemen's Iran-backed Houthis, raising concerns over supply disruptions.
The re-escalation in the Middle East conflict has brought inflation concerns back to the forefront, and dimmed the appeal of European stocks given the region's heavily reliance on fuel imports.
Ipek Ozkardeskaya, market analyst at Swissquote Bank, said there was caution among investors over the escalation in tensions, and rising energy costs were still being reflected in inflation expectations.
The European Central Bank is widely expected to hold interest rates steady on Thursday, even with this latest rise in oil prices. But at least one 25-basis-point increase is priced into markets, along with a roughly 60% chance of a second by the end of 2026, according to LSEG-compiled data.
Meanwhile, quarterly results from Alphabet and Tesla in the U.S. after markets close, will be watched for clues on whether the rally in AI-related stocks still has room to run.
Tech stocks on the STOXX 600 dipped xx%, with Soitec and Aixtron down 1.3% and 3%, respectively.
The sector has seen notable swings recently as investors balance AI-led growth against increasingly stretched valuations, particularly among chip stocks, which have posted an eye-popping rally so far this year on Wall Street and Asian markets.
"The expanding plans from these companies are going to be a double-edged sword because, on one hand, investors don't want the big technology companies to ramp up spending further," said Ozkardeskaya.
"But the spending plans are fuelling the most needed pockets of the market, especially chip makers, data centres and construction plants and resources."
Back in Europe, investors are watching for evidence of how the Middle East conflict is affecting corporate performance.
Airbus gained 7% after the planemaker launched a 5 billion euro ($5.7 billion) share buyback programme and unveiled new mid-term targets including a near-doubling of profits by 2029.
Spanish lender Santander gained 1% after reporting a 17% increase in second-quarter underlying net profit.
Finland's load-handling equipment maker Hiab jumped 7.4% to top the STOXX 600 after higher second-quarter orders.
In London, British inflation cooled by more than expected in June, in a boost for new Prime Minister Andy Burham, as he seeks to ease living costs.
(Reporting by Tharuniyaa Lakshmi and Purvi Agarwal in Bengaluru; Editing by Amanda Cooper and Nivedita Bhattacharjee)
