European shares little changed; Bayer surges on Trump administration backing

By Anastasiia Kozlova, Purvi Agarwal and Tharuniyaa .

Dec 2 (Reuters) - European shares struggled to find direction on Tuesday as caution lingered in the wake of the previous day's losses, while Bayer rocketed on the U.S. administration's backing for measures to curb lawsuits related to its Roundup weedkiller.

The pan-European STOXX 600 .STOXX ended flat at 575.5, following Monday's industrials-driven decline.

Bayer BAYGn.DE jumped over 12% to a near two-year high after the Trump administration urged the U.S. Supreme Court on Monday to take up the company's bid to curtail thousands of lawsuits claiming its Roundup weedkiller caused cancer.

The stock helped keep the broader healthcare index .SXDP afloat, up 0.2%, offsetting losses from Wegovy maker Novo Nordisk NOVOb.CO, which fell 2.3%.

Banks .SX7P extended their winning streak to a seventh session, rising 1.1%. Banco Santander's SAN.MC 1.4% gain was the biggest boost, after it sold a 3.5% stake in subsidiary Santander Bank Polska SPL1.WA, which fell 5.8%.

Erste Group ERST.VI rose 3.7% after Barclays upgraded the Vienna-based bank to "overweight" from "equal-weight", citing positive growth prospects in Central and Eastern Europe.

"The banking sector is both a safe haven and likely to benefit from interest rates remaining high. Spain is often the outlier ... it's mainly due to the financial sector," said Nick Saunders, CEO of trading platform Webull UK.

The bank-heavy Spanish IBEX 35 index .IBEX outperformed peers, closing up 0.5% and near a record high. Germany's main index .GDAXI was up 0.5% and the French benchmark .FCHI lost 0.3%.

Defence companies were in focus, with arms makers Rheinmetall RHMG.DE and Hensoldt HAGG.DE climbing nearly 3%, rebounding from the previous day's losses.

Russian President Vladimir Putin met U.S. President Donald Trump's special envoy Steve Witkoff and his son-in-law Jared Kushner in the Kremlin for talks over a possible end to the war in Ukraine.

EURO ZONE INFLATION RISES, ECB RATE CUTS LESS LIKELY

Investors also assessed fresh data that showed euro zone inflation unexpectedly ticked up last month, likely dashing hopes for further European Central Bank rate cuts anytime soon.

"The European Central Bank is not necessarily looking to cut the interest rates. I think that there will be no rate cuts next year because they consider that the policy is in a good place right now," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

European shares outperformed U.S. peers in the first half of the year, as uncertain trade and monetary policy in the U.S. drove investors to diversify abroad.

Wall Street has since caught up, with gains surpassing those of Europe as U.S. markets capitalised on the euphoria around artificial intelligence.

"The elephant in the room is AI stocks... it's possible that towards the end of the year when volumes are thinner, we may see an increased likelihood of a sharp pullback in the U.S. markets as these are over-valued," Webull UK's Saunders said.

Among other stocks, FDJ United FDJU.PA slipped 5.7% after J.P. Morgan downgraded the lottery and online game operator's stock to "underweight".

ISS ISS.CO was the biggest loser on STOXX, falling 7.7% after analysts pointed to speculation over liability in a Hong Kong tower fire.