(Sharecast News) - European shares rallied at midday on Thursday on a report that Iran said it was prepared to drop its nuclear programme in return for an "alternative offer" from the US as American and Israeli forces continued to bomb Tehran and neighbouring Lebanon.
The pan-regional Stoxx 600 index was up 0.10% to 613 at 1215 GMT. Bellicose language from ministers in Washington and Tel Aviv overnight did nothing to assure markets that the war would be over anytime soon.
"There's been an abrupt change in sentiment this morning, European stock markets are higher and oil and gas prices are moderating, after comments from Iran's deputy (foreign) minister about pre-conflict talks between Iran and the US," said Kathleen Brooks, research director at XTB.
"He said that Iran was ready to get rid of their uranium stockpile before the attacks from the US. The market is taking this as good news. Does it mean that Iran is willing to surrender their nuclear capabilities, and the war won't be prolonged? These comments don't actually change anything at this moment, but it does highlight how reactionary markets are to headlines right now."
Israel bombed more targets in Iran and the Lebanese capital of Beirut on Thursday. Meanwhile the Israeli defence minister Israel Katz claimed his US counterpart the ultra-hawkish Pete Hegseth told him to "continue to the end, we are with you", according to a statement by his office.
Fears of a widening of the conflict escalated on a report that missiles and drones flying from the direction of Iran fell near the airport in the Azerbaijani exclave of Nakhchivan, according to a source close to the government. Tehran later denied it was responsnible.
Oil prices trimmed gains and slipped back below $84 a barrel while gas futures for April were up 5% to €51.752 per kilowatt hour.
"Market volatility is turning investors' heads as the Middle East conflict intensifies and enters a sixth day. Earlier reports from the New York Times that Iran was ready to negotiate were later dashed by Iranian authorities," said Swissquote Bank senior analyst Ipek Ozkardeskaya.
"Chinese financial institutions are scaling back their exposure to Middle Eastern debt - including Aramco - and despite US escort and insurance plans, traffic through the Strait of Hormuz reportedly came to a complete halt yesterday, with no ships transiting."
"Donald Trump says that the US is doing very well in Iran, and investors are willing to believe him, hoping the conflict could move toward a resolution. But the news tell another story."
"Frankly, I'm not sure why investors think so. There is no clear plan, missiles and bombs continue to fall, and oil and gas prices are trading higher this morning.
"On the trade front, the US said it will raise the global tariff from 10% to 15%, but Europeans would keep their 10% tariff rate - whoop whoop - except perhaps for Spain. Trump said he does not want to trade with Spain anymore as the country is unwilling to get involved in the US/Israel conflict with Iran."
On the economics front, the eurozone's hard-pressed construction sector remained under pressure in February, a closely-watched survey showed on Thursday, as output fell and cost inflation rose
The HCOB Eurozone construction PMI total activity index came in at 46.0 in February. That was up on January's 45.3 but remains firmly below the neutral 50.0 benchmark. A reading above 50.0 suggests growth while one below it indicates contraction.
Meanwhile, eEurozone retail sales unexpectedly dipped in January, official data showed on Thursday, driven by a sharp decline in Germany.
According to first estimates from Eurostat, the statistical office of the European Union, the seasonally-adjusted retail trade volume eased 0.1% in the Eurozone and rose 0.1% in the EU. Consensus had been for a 0.3% uptick in the single currency bloc.
In equity news, shares in Italy's Nexi slumped as the payments company said it expected earnings growth to reaccelerate to 2028 as it started a new midterm strategic plan.
Amplifon tumbled as the Italian hearing aid maker reported disappointing results.
Rentokil and Entain surged on results.
Reporting by Frank Prenesti for Sharecast.com