European shares gain on defence boost, tariff delay aids sentiment

By Nikhil Sharma, Purvi Agarwal and Ragini Mathur

May 27 (Reuters) - European shares closed higher on Tuesday with defence stocks boosting the market after U.S. President Donald Trump threatened additional sanctions on Russia, while optimism lingered from the delay of U.S. tariffs on the European Union.

The STOXX 600 index .STOXX closed 0.3% higher, building on Monday's 1% rise after Trump gave the EU a reprieve on his threatened 50% tariffs.

EU policymakers have asked the bloc's leading companies and CEOs for U.S. investment plans to prepare for trade talks with Washington, according to two sources.

The bloc set up trade meetings with the United States, a step Trump said was positive.

The latest flip-flop on EU tariffs highlights the unpredictability of Trump's trade policies, that have been shaking investor confidence and raising concerns over the fiscal health of the U.S. economy.

The uncertainty has been pushing investors away from U.S. assets to find other safe havens internationally.

Europe's defence index .SXPARO jumped 1.7% to a record high, after Trump said he would recommend additional sanctions on Moscow, amid escalating tensions between Russia and Ukraine.

"There is recognition of the fact that Trump is less close to Putin than he had been and that there is more likely to be a prolonged conflict in Ukraine rather than the quick end" said Nick Saunders, CEO of Webull UK.

"Defence is definitely a sector that is in fashion at the moment."

Technology shares .SX8P rose 1.1%, while industrials .SXNP added 0.9%.

"People are actually looking for value at the moment and trying to pick the most profitable stocks rather than assuming that the rising tide is going to float all boats," said Saunders.

In Germany, the DAX 40 .GDAXI ended 0.8% higher, closing at an all-time high, after a survey indicated consumer sentiment is set to improve slightly heading into June.

However, the German Chamber of Commerce and Industry (DIHK) forecast a contraction in the economy this year.

Euro zone government bond yields dipped on the day.

Britain's FTSE 100 share index .FTSE ended 0.7% higher as investors returned following a holiday on Monday.

French benchmark index CAC 40 .FCHI was flat after preliminary data showed inflation fell to its lowest level since December 2020 in May, with the government hinting at proposals to get public finances under control in early July.

FLSmidth FLS.CO rose 3.4% after Goldman Sachs raised the mining and cement technology supplier's rating to "buy" from "neutral" on expectations of higher margins.