European stocks slip as Middle East uncertainty makes for caution

By Johann M Cherian and Avinash P

Nov 3 (Reuters) - Europe's benchmark equities index slipped on Tuesday, as doubts over a potential Middle East peace deal kept markets on edge ahead of the US midterm elections, while investors also assessed a slew of earnings.

The pan-European STOXX 600 index closed 0.58% lower at 645.66 points, with mining shares leading declines on weaker copper prices.

Iran and the United States are still far from a deal to end their war, a senior Iranian official told Reuters. Overnight, the United States carried out what it called defensive strikes on Iran's Qeshm island.

Chris Beauchamp, chief market analyst at IG Group, said there was a willingness across European markets to buy on dips amid hope that a deal could help drive oil prices lower, but the lack of clear progress, coupled with the US election, was keeping investors cautious.

Brent crude swung between gains and losses and was last down 1.2%, but above $100 a barrel.

On the earnings front, the German online fashion retailer Zalando fell 6.6%, the biggest faller on the STOXX index, after weaker gross margin and net loss outweighed slightly-better-than-expected sales. The broader retail sector declined 2%.

The technology sector <.SX8P> lost nearly 1%, with AI heavyweight ASML declining 1.6%.

The weakness mirrored losses in Asian tech benchmarks earlier in the day as investors reassessed the sustainability of the AI-driven rally following disappointing results from US cloud computing companies in the previous week.

Apple's dour gross margin forecast for the crucial holiday quarter added to the cautious mood.

In Europe, however, Gilles Guibout, head of European equities at BNP Paribas Asset Management, said valuations had cooled, but earnings dynamics were still positive.

"We would rather be in 'buy on weakness' mode for the time being, because we don't think that those investments will be questioned. We could have some projects that could be delayed but, by and large, what we are seeing is that all the investments are fuelled by the need for more compute."

Reflecting that demand, Britain's Drax jumped 6.6% on a data centre project with Brookfield and AI infrastructure platform Radiant that could attract more than £20 billion ($26.8 billion) in investment.

The German pharmaceuticals and agriculture group Bayer rose 3.6% after raising its 2026 profit forecast.

Lufthansa gained 3.9% as analysts pointed to broadly resilient results, despite the carrier trimming its annual profit forecast.

Philips gained 4.8% after reaching a preliminary agreement with the US Department of Justice to end investigations linked to the Dutch company's 2021 global recall of sleep and respiratory-care devices.

Sportswear maker Adidas dropped 2.8% after brokerage UBS downgraded it to "sell" from "neutral".

(Reporting by Johann M Cherian and Avinash P in Bengaluru; Editing by Sonia Cheema and Shilpi Majumdar)