By Shubham Batra
(Reuters) - European stocks hit a two-week high on Tuesday, supported by financials, as markets drew closer to an expected start to the U.S. Federal Reserve's monetary easing cycle that could see policymakers deliver an outsized interest rate reduction.
The continent-wide STOXX 600 index was up 0.5% at 517.74 points, and Britain's FTSE 100 outperformed its European peers with a 0.7% jump.
All sectors were trading higher, led by a nearly 1% gain in basic resources, as greenback-priced copper edged higher due to a softer dollar and expectations of a U.S. rate cut. [MET/L]
Banks and travel shares also boosted the markets, rising 0.8% each.
Investors will be squarely focused on Fed's decision on Wednesday, with markets now pricing in a 67% chance that the U.S. central bank could ease rates by 50 basis points.
"I think there is some volatility and nervousness in the market about the growth environment, maybe about politics. But overall indeed about the central banks decisions," said Yvan Mamalet, senior economic strategist at SG Kleinwort Hambros.
"I don't think it's only the Fed. I think the Bank of Japan decision at the end of the week - the communication is also leading to the uncertainty and maybe to the nervousness as well."
Markets will closely monitor German sentiment survey at 0900 GMT that is expected to show a slight deterioration in September, and U.S. retail sales, due at 1230 GMT, are forecast to have contracted in August on a monthly basis.
European Central Bank's supervisor Claudia Buch and board members Elizabeth McCaul and Frank Elderson will be speaking later in the day.
Among stocks, Kingfisher (LON:KGF) was the top gainer, rising 7.1% after the European home improvement retailer raised the bottom-end of its profit outlook for the full year.
Shares of Barry Callebaut climbed 7% after Barclays (LON:BARC) raised the stock's rating to "overweight" from "underweight".
Sweden's Thule Group slipped 6.7% to the bottom of STOXX 600 as its second-quarter revenue fell and its debt rose.
Playtech (LON:PTEC) slid 2.3% after the British gambling technology firm agreed to sell its Italian unit Snaitech for 2.3 billion euros ($2.56 billion), including debt, to the world's largest betting company Flutter Entertainment.
Shares of Flutter were up 0.8%.