EUROPEAN shares were flat on Friday after hitting a one-week high in early trade, as rising tensions in the Middle East eroded some of the continued optimism around the European Central Bank’s hint of imminent rate cuts.

The pan-European Stoxx 600 ended the session 0.1 per cent higher, after rising as much as 1.2 per cent during the day, but logging its second straight weekly decline.

After an early trade rally, benchmark indexes in major economies such as Germany and France closed in the red, while that of Italy and Spain closed off the day’s highs.

The euro Stoxx volatility index climbed to its highest level since October, reflecting some investor anxiety.

Automobiles and travel leisure led sectoral declines, while the energy sector jumped 2.4 per cent to its highest level since 2008 owing to higher oil prices, geopolitical risks, and global economic uncertainty.

“It all smells of geopolitical risk coming through ... now we have a much more risk-off move,” said Andreas Bruckner, European equity strategist at BofA Global Research.

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Luxury giants LVMH and Richemont lost 1.2 per cent and 3 per cent, respectively, weighing on the Stoxx 600. The broader luxury sector shed 1.3 per cent to a near two-month low.

Investors meanwhile drew some comfort from unchanged final March inflation readings from top economies in the eurozone, including Germany, France and Spain.

Optimism around interest rate cuts by major central banks this year had buoyed European shares since late 2023, with the ECB hinting rates could be lowered, as early as June.

As for other sectors, basic resources jumped 2.4 per cent to a near one-year high as copper prices jumped to their highest since June 2022.

Among top gainers, Orsted climbed 4.5 per cent. Oddo BHF upgraded the Danish renewable energy group to “outperform” from “neutral”, while Evotec rose 3.5 per cent after Deutsche Bank upgraded the German biotech firm to “buy” from “hold”.

Societe Generale gained 2.1 per cent after the lender agreed to sell Société Générale Marocaine de Banques and La Marocaine Vie to Moroccan conglomerate Saham Group for 745 million euros (S$1.09 billion).

Varta slumped 31.1 per cent after the German battery maker said its restructuring plans would fail to make it profitable by 2026.

Zurich Insurance dropped 3.8 per cent as the Swiss group traded ex-dividend.

Chocolate maker Barry Callebaut dropped 5.5 per cent after jumping nearly 12 per cent in two days following higher first-half sales volumes on Wednesday. REUTERS