Rally in Defence Stocks Lifts European Shares Amid Inflation Fears

European shares rose on Wednesday, led by gains in defence stocks, despite global inflation concerns. The STOXX 600 index increased anticipating potential NATO spending boosts. U.S. data indicating a strong economy tempered expectations for further rate cuts. Meanwhile, oil prices rose due to reduced supply from Russia and OPEC.

In a striking divergence from U.S. and Asian markets, European shares climbed on Wednesday, propelled by a robust rally in defence stocks. The STOXX 600 index ascended 0.3%, reaching its highest point since mid-December, following U.S. President-elect Donald Trump's call for NATO allies to increase spending.

Reports about auto tariffs and European wind energy affected specific sectors, while the broader market remained fixated on the U.S. economic landscape. Following favorable jobs and service sector data, investors adjusted their outlook on potential Federal Reserve rate cuts, anticipating fewer decreases than previously expected.

Amidst global financial movements, oil prices experienced an uptick, driven by limited supply from OPEC and Russia, with Brent crude rising 0.67% to $77.57 per barrel. Conversely, the euro weakened against a stronger dollar, reflecting ongoing concerns over regulatory uncertainties impacting currencies.

(With inputs from agencies.)