UPDATE 2-European shares end slightly higher as investors weigh Iran peace proposal 

European shares ended slightly higher on Tuesday as investors welcomed news that the U.S. had paused an attack on Iran and weighed the chances of an imminent ‌peace deal at a time when inflation concerns globally kept bond yields elevated. Tehran's latest peace proposal involves ending hostilities on all fronts, the exit of U.S. forces from areas close to Iran, and reparations for destruction caused by the U.S.-Israeli war, state media reported.

Brent crude prices were volatile throughout the day ‌and were last down 1%, although prices remained over $100 a barrel. The pan-European STOXX 600 finished 0.2% higher at 611.34 points, still trading below ‌pre-war levels. The benchmark has lagged global peers, as its dependence on oil imports and lack of strong exposure to AI hardware stocks limited gains. Bonds steadied after a steep selloff in the past few sessions, although in Europe, the German benchmark was hovering at a 15-year high as traders priced in at least two interest rate hikes by the ⁠European Central ​Bank by year-end.

"Markets are still being ⁠driven by a tug-of-war between strong fundamentals and rising macro risk, but the tone has become noticeably more cautious over the past 24 hours," said Daniela Hathorn, senior market analyst ⁠at Capital.com. "Bond yields have continued to move higher, reflecting fears that elevated energy prices could keep inflation sticky and force central banks to remain restrictive for longer." Reflecting ​the caution, defensive sectors, those that are perceived to fare relatively better in times of economic downturns, led sectoral gains. The Food & ⁠Beverage and Healthcare indexes added over 1.5% each.

Wednesday will bring results from chip giant Nvidia , which could test the AI trade that has lifted global markets over the past few ⁠weeks. European ​semiconductors gave up some recent gains as Infineon lost over 2.5% and ASMI fell over 1%. On the other hand, software stocks SAP and Dassault Systèmes gained 6% and 2.8%, respectively. Lagercrantz rose 8.2% after the Swedish firm posted better-than-expected fourth quarter earnings. Saab advanced 4.4% as Sweden is set ⁠to buy navy frigates from France for over $4 billion that would accommodate the company's weapons systems. Germany's Hensoldt and Rheinmetall added 8.2% and 3%, respectively. Vallourec tumbled ⁠7.9% after ArcelorMittal sold a 10% ⁠stake in the French steel tubes maker at a discount. Meanwhile, European Union negotiators were expected to agree to scrap import duties on U.S. goods to comply with a U.S. trade deal and prevent President Donald ‌Trump from acting on ‌his threat of raising tariffs.

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