European stocks close at five-month highs as investors monitor progress on Ukraine

By Twesha Dikshit and Sukriti Gupta

Aug 19 (Reuters) - European shares closed at their highest level in more than five months on Tuesday as investors assessed the chances of an end of the war in Ukraine, following Monday's talks in Washington between U.S., Ukrainian and European leaders.

The pan-European STOXX 600 index .STOXX closed 0.7% up. Most major regional bourses also traded firmer.

Markets were buoyed by hopes of more talks to resolve Russia's war in Ukraine after U.S. President Donald Trump promised security guarantees for Kyiv at a summit with Ukrainian and a group of European leaders, though there was little clarity on the specifics.

He said arrangements for a trilateral summit between the U.S., Russia and Ukraine were being made.

On Tuesday, Trump said he hoped Putin would move forward on ending the war but conceded the Kremlin leader may not want to make a deal.

European defence stocks .SXPARO fell 2.6%, marking their worst day in over a month, and were the biggest laggards on the STOXX 600 index.

Shares in Italy's Leonardo LDOF.MI fell 10.2%, the most on the index. Hensoldt HAGG.DE and Renk Group R3NK.DE fell 9.5% and 8.3% respectively, while Rheinmetall RHMG.DE was down 4.9%.

"The rest of the market is edging cautiously higher... that really reflects what we think about the prospect of a peace deal - it's likely in some shape or form," said Nick Saunders, CEO of stock trading platform Webull UK.

"What form that takes is going to be difficult to determine."

Consumer discretionary sectors led broader gains with automobiles .SXAP and food and beverage stocks .SX3P up 2.4% and 1.6% respectively.

Luxury stocks .STXLUXP surged on a boost from Moncler MONC.MI, up 4.9%, and Burberry BRBY.L rising 5.1%.

Meanwhile, latest forecasts showed a dip in the outlook for European corporate health, marking a change of direction after several weeks of improvement.

However, of the 259 STOXX 600 companies that have reported second-quarter earnings so far, almost 53% have exceeded analyst estimates, LSEG I/B/E/S data showed.

The STOXX 600 has gained almost 10% this year driven by hopes of higher spending in the bloc, a shift to European assets in the first half of 2025 and rising expectations of a U.S. interest rate cut.

However, Saunders did not expect continued capital flow into Europe as global trade war fears had somewhat subsided.

The Federal Reserve's annual Jackson Hole symposium will also be in focus this week. Investors will scrutinize any clues from Chair Jerome Powell and others on monetary policy, even as a September cut remains priced in.

Among other stocks, JD Sports JD.L gained 6.9% after Deutsche Bank raised the British sportswear retailer's target price to 100 pence from 85 pence.