The pan-European STOXX 600 added 0.4% to 579.28 points

European shares settled higher after a choppy session on Tuesday, as investors weighed hopes of de-escalation ‌in the Middle East war against concerns of long-term economic harm.

The pan-European STOXX 600 added 0.4% to 579.28 points, after dropping 0.7% earlier in the session.

Telecom and energy stocks led the advance with gains of 2.5% and 2.4%, respectively. Defence shares dropped 1.1%, ​while financials slid 0.7%.

Oil price-sensitive travel and leisure sector, one of the hardest hit during the recent ​selloffs, rose 0.1%.

Markets have swung between gains and losses this week, whipsawed by ⁠rapid shifts in rhetoric between Iran and U.S.

The Strait ​of Hormuz, which carries one-fifth of the global oil trade, has largely been shut since the war began. In recent days, energy infrastructure in the Middle East has come under attack as well, sparking a new bout of uncertainty.

The baseline scenarios for energy price ​outcomes have shifted higher. The risks in either an escalation or de-escalation scenario are higher than before because ​the disruption has moved past the Strait to production, Morgan Stanley analysts wrote.

European countries rely heavily on oil imports and a ‌sustained supply ⁠shock could push regional inflation higher.

The impact of the war was seen in a survey that showed euro zone private sector growth slowed sharply in March. Similar surveys in Germany showed that the private sector grew at its weakest pace in three months, while France’s contracted at its fastest pace since October.

Dovish policymakers will use the data ​to argue for caution in ​tightening too quickly, too ⁠soon, but we think their pledges will fall on deaf ears as the inflation data roll in, said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics.

Markets are ​pricing in at least two 25-basis-point rate hikes from the European Central Bank in 2026, ​a sharp contrast ⁠from before the war, when policymakers were expected to keep rates unchanged through the year.