European shares rise as investors weigh potential Russia-Ukraine peace deal

European shares edged higher on Tuesday as investors weighed the possibility of a peace deal between Russia and Ukraine following encouraging diplomatic signals after a White House meeting with European leaders.

The pan-European STOXX 600 index was up 0.3%, as of 0840 GMT, in light summer trading. Most major regional bourses were also trading in the green.

Defence stocks dropped 2%, pressured by news of a potential Ukraine-Russia summit. Shares of Renk Group, Rheinmetall and Hensoldt slipped between 3.5% and 6.4%.

Norway's Kongsberg and Italy's Leonardo fell over 4% each. Britain's BAE Systems and Babcock International dropped 2.7% and 4.4%, respectively.

U.S. President Donald Trump told his Ukrainian counterpart Volodymyr Zelenskiy that Washington would help guarantee Ukraine's security in any peace deal to end Russia's war there, though the extent of any assistance was not immediately clear.

The pledge followed a White House meeting with European leaders, with formal guarantees expected to be finalised within the next 10 days.

German Chancellor Friedrich Merz said that Zelenskiy and Russian President Vladimir Putin would meet within the next two weeks, followed by Trump extending a three-way meeting afterward to begin negotiations.

"It seems that investors are taking this as a positive story," said Elwin de Groot, head of macro strategy at Rabobank.

"It's a fairly modest reaction but positive... but on the other hand there's lots of questions about how much upside there really is in markets given the economic challenges that we're still facing, especially in Europe."

The STOXX 600 has gained almost 10% this year driven by higher defence spending and Germany's commitment to raise its fiscal spending as well as greater interest in the region following Trump's steep tariffs announcement in April.

The Federal Reserve's annual Jackson Hole symposium later this week will be in focus, where Chair Jerome Powell and others will talk about economic outlook and monetary policy.

Luxury stocks received a boost with Moncler and Burberry adding about 3% each.

Among other movers, JD Sports gained 4.9% and was the top gainer on the STOXX 600. Deutsche Bank raised the British sportswear retailer's target price to 100 pence from 85 pence.

(Reporting by Twesha Dikshit and Sruthi Shankar in Bengaluru; Editing by Sherry Jacob-Phillips and Mrigank Dhaniwala)