By Pranav Kashyap
(Reuters) -European shares advanced on Wednesday, led by gains in energy and defence stocks, defying a slump in Asia and Wall Street after Iran's missile strike on Israel amplified fears of a broader regional conflict.
The pan-European STOXX 600 was up 0.3% at 522.37 points.
The energy sector gained 2.4% and eyed its best session in more than five months, as oil prices rose on concerns that the Middle East conflict could escalate following Iran's biggest-ever military blow against Israel. [O/R]
Heightened tensions also boosted defence companies including Germany's Rheinmetall, Sweden's Saab, BAE Systems (LON:BAES), Leonardo, Thales and Dassault Aviation, which gained between 2% and 3%.
A gauge of European aerospace and defence stocks rose nearly 1%.
Israeli Prime Minister Benjamin Netanyahu promised that Iran would pay for its missile attack against Israel on Tuesday, while Tehran said any retaliation would be met with "vast destruction".
Basic resources rose 0.9% as copper prices gained after China's stimulus measures brightened demand prospects. [MET/L]
On the data-front, euro-zone unemployment data for August is expected at 0900 GMT. Markets will also monitor comments by the European Central Bank's chief economist, Philip Lane, with a host of ECB board members set to speak through the day, including Vice President Luis de Guindos.
Rate-sensitive European real estate stocks, down nearly 1%, were the biggest drag on the benchmark index on the day.
Meanwhile, Citigroup said that it now expects the ECB to cut interest rates by 25 basis points in its October meeting, with subsequent cuts expected in December and through the start of 2025.
The ECB will meet in less than two weeks to take a call on borrowing costs.
"The biggest driver of the market is the anticipation that the ECB may actually move from once a quarter cuts to back-to-back cuts," said Karim Chedid, Blackrock (NYSE:BLK)'s chief investment strategist for iShares EMEA.
"As we enter a new earnings season in Europe, there could be headwinds for the cyclical parts of Europe, given that the manufacturing slump is nowhere near done," he added.
Among individual stocks, JD Sports Fashion lost 2.5% despite the British sportswear retailer beating a consensus forecast for first-half profit.
Spain's September jobless rose 0.12%, according to its labour ministry. The benchmark IBEX 35 was trading flat.