European shares dip as US-Iran tensions weigh on sentiment

European equities fell on Tuesday as uncertainty over U.S.-Iran peace talks kept investors cautious, hours before a ceasefire is due to expire.

President Donald Trump said he did not want to extend the ceasefire and the U.S. military was "raring to go" if any negotiations failed.

Pakistan said it was still awaiting confirmation from Iran that its delegation would attend peace talks in Islamabad.

The pan-European STOXX 600 index .STOXX closed down 0.9% at 616.03 points. Major regional markets also fell, with France's CAC 40 .FCHI and London's FTSE 100 .FTSE each down 1.1%.

Germany's DAX .GDAXI dipped 0.6%. German investor morale fell to its lowest in more than three years in April, the ZEW economic research institute said.

Concerns over oil supply disruptions continued to weigh on Europe's energy-dependent economies, with many companies flagging conflict-related risks in quarterly earnings.

"I think European markets are likely to see a bigger bump in inflation, which will probably lead to rate hikes from the ECB. And that will just upset the narrative of 'it's time to be long Europe'," said Chris Beauchamp, chief market analyst at IG Group.

A 3% rise in crude oil prices lifted the energy sector .SXEP, which added 0.4%.

The aerospace and defence index .SXPARO led declines, sliding 4.8% for its steepest one-day drop since April 2025.

Europe's largest defence technology group Thales TCFP.PA fell 6% after first-quarter sales missed forecasts. Aircraft-engine makers Safran SAF.PA and Rolls-Royce RR.L dropped more than 6.5% each.

Healthcare stocks .SXDP also weighed on the index, with the sector down 2%. Wegovy maker Novo Nordisk NOVOb.CO fell 4.2%, while AstraZeneca AZN.L and GSK GSK.L each lost more than 2.5%.

The food and beverages index .SX3P declined 1.8% after Royal Unibrew RBREW.CO plunged 24.8%. The Danish brewer said its partnership with PepsiCo PEP.O in northern Europe was set to end.

Some analysts said the pullback in Europe offered selective buying opportunities, with shares trading at a discount to U.S. peers.

"For those investors who are willing to take the time and actively manage their European exposure, there are intriguing opportunities, not only from a value perspective but also in certain areas and in certain pockets on a growth perspective as well," said Eric Parnell, chief market strategist at GVA Wealth Management.

Markets are pricing in an 84% chance that the European Central Bank will keep interest rates unchanged at next week's meeting, according to LSEG data.

-Ragini Mathur, Utkarsh Hathi and Twesha Dikshit/Reuters