European shares climb to one-month high as Middle East peace hopes emerge

European shares rallied to their highest intraday level in over a month on Tuesday, as investors welcomed signs of possible Middle East peace talks, even as LVMH and other companies warned of fallout from the war.

The pan-European index .STOXX was up 0.8% at 618.85 points, as of 0857 GMT, reaching its highest intraday trading levels since March 3.

Sources said that negotiating teams from the U.S. and Iran could return to Islamabad this week, days after talks between the two countries ended without a breakthrough.

The development was sufficient to trigger a rebound in stocks, while oil prices retreated below $100 a barrel O/R. Europe's energy sector .SXEP edged 0.1% lower on the day.

"While there will be bumps along the road in the process of negotiations, at least the fact that both parties have come to the table and are looking to make an agreement is clearly a positive and puts a limit to further geopolitical volatility," said Craig Cameron, portfolio manager and analyst for Templeton Global Investments at Franklin Templeton.

European markets have weathered significant headwinds since the war erupted in late February, largely because of the region's heavy reliance on energy imports.

Despite these challenges, the STOXX 600 index has gained about 4% year-to-date, slightly outperforming the U.S. benchmark S&P 500's .SPX 0.5% rise over the same period, as of the last close.

Leading the gains on Tuesday, industrial .SXNP and technology stocks .SX8P were up 1.2% and 1.9%, respectively.

Banking stocks .SX7E also jumped about 1%.

Meanwhile, the personal and household goods .SXQPinched 0.1% lower, with LVMH LVMH.PAmarginally down after the luxury group said the Iran war shaved at least 1% from group sales in the last quarter due to lower spending in the Gulf.

Imperial Brands IMB.L plunged about 8% to near nine-month lows after the maker of Davidoff cigarettes said the impact of the Middle Eastern conflict could disrupt second-half performance.

"I don't think it's a surprise that luxury goods obviously are taking an impact from the Middle East conflict as the sector is overly exposed to the region, but for the vast majority of European companies I do think the war impact will be short lived," Cameron said.

On the flip side, Intertek Group ITRK.L rose 12.4% after the product testing firm said it was exploring the potential separation of its energy and infrastructure and testing and assurance.

Chemicals group Sika SIKA.S jumped 9.4% after it reported a narrower-than-feared organic decline in the first quarter.

-Ragini Mathur/Reuters