Europe close: Stoxx 600 hits six-week low as Israel-Iran conflict worsens

(Sharecast News) - European stocks fell to their lowest levels in six weeks on Tuesday as fighting between Israel and Iran intensified, dampening risk appetite and driving up the price of oil. Europe's Stoxx 600 index finished 0.9% lower at 542.26, its lowest level since 9 May, with losses of 1.1% or more in Frankfurt , Milan and Madrid. That was tempered by more moderate declines in London and Paris, down 0.5% and 0.8% respectively.

"Middle East tensions are showing no signs of easing back, putting investors on high alert," said Russ Mould, investment director at AJ Bell.

Stocks mostly rose on Monday on the back of hopes of a de-escalation between Israel and Iran following reports that Tehran would be willing to return to the negotiating table over a nuclear deal, causing oil prices to retreat after a significant surge on Friday.

However, a fresh wave of attacks from both sides dampened those hopes overnight, with Israeli prime minister Benjamin Netanyahu saying his country was "not backing down" from eliminating Iran's nuclear capabilities. Brent crude was up 2.1% at $74.80 a barrel by the close in Europe.

Meanwhile, further dampening sentiment was the news that US president Donald Trump left the G-7 Summit in Canada one day early and urged Iran to evacuate Tehran, suggesting an escalation of the conflict was imminent. In a post on Truth Social, Trump said he had not reached out to Iran for "peace talks in any way, shape, or form".

In macro news, investor sentiment in Germany rose much more than expected this month, as interest-rate cuts and improving government finances helped bolster confidence. The ZEW survey jumped to 47.5 in June, up from 25.2 in May. This was well ahead of the consensus forecast of 35 and within a handful of points of the 51.6 mark reached in March - its highest since February 2022.

Market movers

Banking stocks were in the red across the continent, with investors selling off economic bellwethers in light of rising geopolitical risks. French lenders Societe Generale and BNP Paribas were out of favour, along with German peers Commerzbank and Deutsche Bank, and UK giants HSBC and Barclays.

In Madrid, Banco Sabadell was lower after confirming that it is exploring a potential sale of high street lender TSB. In a brief statement following widespread media reports, the lender said it had received "preliminary non-binding expressions of interest for the acquisition of the entire share capital of TSB" and confirmed it would weigh up any potential binding offer.

Kering was a heavy faller in Paris after the French luxury brand surged the previous session on hopes that Renault boss Luca de Meo would be joining as CEO.

Truck makers Volvo and Daimler Truck were both lower after announcing a new joint venture over software development for commercial vehicles called Coretura.

On the FTSE 100, downside was limited by solid gains from energy majors BP and Shell as they tracked oil prices higher. The FTSE 100 was also supported by the news that UK Prime Minister Keir Starmer and Trump had signed off a trade deal at the G7 summit.

Also rising was FTSE 250-listed construction services group Morgan Sindall which surged 15% after saying that full-year results for 2025 will be "significantly ahead" of previous expectations.