UPDATE 2-European shares end higher on earnings optimism, US rate cut hopes

European shares closed higher on Tuesday, buoyed by better-than-expected corporate earnings and renewed optimism that the Federal Reserve may cut interest rates next month.

The pan-European STOXX 600 index edged up 0.15%, with most regional bourses also trading in the green. Earnings season, in full swing, offered some relief for investors concerned about the impact of trade uncertainty on corporate performance.

Diageo gained 4.9% after the world's biggest spirits maker forecast flat 2026 sales despite U.S. tariffs and upped its cost-savings target. The stock boosted the food & beverage index by 1.2%, making it the day's top performing sector.

German chipmaker Infineon gained 4.6% after it slightly raised

its full-year profit outlook and noted the start of a global semiconductor market recovery despite lingering tariff concerns. BP

said it will review how best to develop and monetise oil and gas production assets and consider more cost cuts to boost shareholder returns after beating second-quarter profit expectations, which sent its shares up 2.8%.

"The market has learned to adjust to the reality of tariffs quite well," said Chris Beauchamp, chief market analyst at IG Group. This earnings season is the first to reveal the corporate health impact from U.S. President Donald Trump's tariff-fueled trade war. Following the EU-U.S. trade deal, analysts have raised their second-quarter

earnings growth estimates .

Following a solid performance in the first half of the year, analysts have highlighted that sentiment towards U.S. stocks has been improving over European names, with the STOXX 600 now underperforming the U.S. S&P 500. "The strength in the U.S. is returning quite dramatically," Beauchamp said. "But we're still saying that there are plenty of interesting opportunities in Europe as you've good-quality companies with earnings growth still there. It may be a little bit beaten down, but there is still enough to like about Europe."

Also helping the mood globally were expectations that the U.S. Federal Reserve will lower interest rates faster than previously expected following soft U.S. nonfarm payrolls data last week. Rate-sensitive bank stocks shed 0.3% in tandem with falling euro zone yields.

Smith+Nephew jumped 15.3% after the British medical products maker posted a rise in first-half profit

and announced a new $500 million share buyback for the rest of the year. Novo Nordisk shares dropped 2.3% after

UBS downgraded the stock to "neutral" from "buy", citing several challenges to the company's growth.

The company is expected to report quarterly results this week. Its shares lost 32% last week after it slashed its 2025 forecast

and named an insider as new CEO. Meanwhile, a survey showed that euro zone business activity

grew slightly faster in July than in June, although demand remained subdued.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)