European stocks rose on Thursday, on course to end the month with gains, as investors took some comfort from expectations that a proposed deal to extend the ceasefire in the Middle East and reopen navigation through the Strait of Hormuz could win approval.
Sources said the proposal had not yet received the approval of US President Donald Trump and does not address more complex issues such as Iran's nuclear programme.
The pan-European STOXX 600 index rose 0.3% to 626.91 points and is on track to post a weekly gain. The index approached its record highs this week and is heading for gains for a second consecutive month, though escalating tensions in the Middle East have limited further advances.
Crude oil prices, which weigh heavily on Europe given its energy shortages, fell and are on course to post their first weekly decline in two months.
High energy prices have begun to affect consumers, as preliminary estimates from France showed inflation accelerating in May compared with the previous month.
The defence sector was among the best performers, gaining as much as 1.4%. Tensions between Russia and Ukraine escalated, with NATO member Romania announcing that a drone struck two people in a city in the country's southeast during a Russian overnight attack on Kyiv.
Defence stocks typically rise when geopolitical tensions increase, as investors anticipate stronger near-term demand for military equipment and services.
Shares in German ticketing company CTS Eventim jumped 11% after the company said its revenues grew 23% in the first quarter of 2026, driven by strong demand.
Japan's Nikkei index rose to a record high, buoyed by renewed optimism over the possibility of an imminent US-Iran deal and enthusiasm for artificial intelligence stocks following strong earnings announced by Dell Technologies.
The Nikkei recorded its highest closing level ever, rising 2.5% to 66,329.50 points, and also hit an all-time intraday high of 66,505.02 points.
The broader TOPIX index rose 1.4% to 3,957.17 points, also a record closing level, and set a new intraday peak at 3,984.58 points.
Sources told Reuters that the United States and Iran had reached an agreement to extend the ceasefire and lift restrictions on navigation through the Strait of Hormuz, but that US President Donald Trump had not yet approved it, while Iranian state media said final touches had not yet been put to the deal.
Conflicting reports in recent days about progress in negotiations between Washington and Tehran have caused stocks to fluctuate, but the Nikkei and TOPIX rose 4.7% and 1.7% respectively over the week.
The Nikkei outperformed significantly, thanks to its heavy weighting in technology stocks and companies investing in the sector, such as SoftBank Group, whose shares rose 5.1% on Thursday, bringing the weekly gain to 10.9%.
Dell raised its annual revenue and earnings forecasts two days ago, signalling that the expansion of customers' data centres is fuelling demand for its AI-optimised servers.
Wataru Akiyama, an analyst at Nomura Securities, said: