European stocks rally as oil falls on hopes for US-Iran deal

European shares rallied at open on Friday, with all major indexes gaining more than 1%, as oil prices slipped on hopes for a diplomatic breakthrough in the Middle East.

Brent crude fell more than 2%, extending the previous session's losses, after U.S. President Donald Trump cancelled plans to strike Iran, reducing fears of an escalation of hostilities. O/R

The pan-European STOXX 600 index .STOXX advanced 1.2% to 628.81 points by 0720 GMT and was set for a 1% weekly gain. All sectors except energy .SXEP rose.

The benchmark snapped a four-day losing streak on Thursday, as investors digested the European Central Bank’s rate hike and largely looked past escalating rhetoric around the U.S.-Iran conflict.

Travel and leisure stocks .SXTP led sectoral gains with a 3.4% rise, with Lufthansa LHAG.DE and Air France AIRF.PA jumping 4.6% and 5.7%, respectively.

Banks .SX7P gained 2.3%, with Barclays BARC.L and Standard Chartered STAN.L climbing more than 2%.

AI equipment makers Legrand LEGD.PA and Schneider Electric SCHN.PA climbed 1% and 1.4%, respectively.

Novo Nordisk NOVOb.CO added 0.4% after Britain's medicine regulator approved the drugmaker's weight-loss pill on Thursday, making the UK the first market in Europe where patients can access the oral treatment.

Among other movers, online gaming operator Entain ENT.L rose 3.2% after Barclays upgraded the European gaming sector to "market-weight".

On the data front, German inflation eased slightly to 2.7% in May, while Britain's economy contracted by 0.1% in April.

-Reporting by Utkarsh Hathi in Bengaluru; Editing by Eileen Soreng/Reuters