The pan-European STOXX 600 closed 0.2% higher at 611.34 points

European shares closed slightly higher on Tuesday as investors weighed the chances of an imminent Middle East peace deal at a time when inflation concerns globally kept bond yields higher.

Brent ​crude prices were volatile throughout the day and were last down 1%, although prices ⁠remained over $100 a barrel.

The pan-European STOXX 600 closed 0.2% higher at 611.34 points, still trading below pre-war levels. The benchmark ​has lagged global peers, as its dependence on oil imports and lack of strong exposure to AI hardware stocks ​limited gains.

Bonds steadied after a steep selloff in the past few sessions, although in Europe, the German benchmark was hovering at a 15-year high as traders priced in at least two interest rate hikes by the European Central Bank by year-end.

Markets are still ​being driven by a tug-of-war between strong fundamentals and rising macro risk, but the tone has become noticeably ​more cautious over the past 24 hours, said Daniela Hathorn, senior market analyst at Capital.com.

Bond yields have continued to move higher, ‌reflecting fears ⁠that elevated energy prices could keep inflation sticky and force central banks to remain restrictive for longer, she said.

Reflecting the caution, defensive sectors, those that are perceived to fare relatively better in times of economic downturns, led sectoral gains. The Food & Beverage and Healthcare indexes rose more than 1.5% each.

Wednesday will bring results from chip giant Nvidia, which could ​test the AI trade that ​has lifted world markets ⁠over the past few weeks.

European semiconductors gave up some recent gains as Infineon shed more than 2.5% and ASMI dropped more than 1%.

On the other hand, software stocks SAP and ​Dassault Systèmes added 6% and 2.8%, respectively.

Lagercrantz advanced 8.2% after the Swedish firm posted ​better-than-expected fourth ⁠quarter earnings.

Germany’s Hensoldt and Rheinmetall rose 8.2% and 3%, respectively.

Vallourec dropped 7.9% after ArcelorMittal sold a 10% stake in ⁠the ​French steel tubes maker at a discount.