European shares rise as STMicroelectronics lifts tech; inflation backs ECB hike bets

By Johann M Cherian, Utkarsh Hathi and Ragini Mathur

June 2 (Reuters) - European shares rose on Tuesday, as a strong forecast from STMicroelectronics boosted technology stocks and investors assessed euro zone inflation data for signs of the Middle East conflict's impact on the economy.

The pan-European STOXX 600 index rose 0.7% to 625.34 points, while the technology sub-index gained 3.4%, making it the best-performing sector.

Chipmaker STMicroelectronics rose 15.1% to hit €68.26, its highest since September 2000, after lifting revenue targets for its data centre business, signalling strong demand from the AI boom.

Other AI-related stocks such as Infineon and Schneider Electric added 9.5% and 4%, respectively.

"Semiconductors are probably no longer merely a traditional technology sector. They are gradually becoming the central infrastructure of tomorrow's global economy," said John Plassard, partner, head of investment strategy at Cité Gestion.

"The real question may therefore no longer be whether the cycle will eventually end, but rather how long this global AI supercycle can continue before markets genuinely begin to anticipate its conclusion."

Risk appetite was also helped by tentative signs of progress in the U.S.-Iran peace talks to resolve a three-month long conflict. Iranian media reported that Tehran was reviewing a U.S. proposal to halt the war, though it had not communicated with Washington for several days.

Crude prices were steady after falling earlier in the day. Still, with oil trading around $95 a barrel, energy costs are expected to remain a strain, analysts said.

INFLATION JUMP STRENGTHENS CASE FOR ECB RATE HIKE

Euro zone inflation accelerated to 3.2% in May from 3.0% in April, driven by energy and services prices. The reading reinforced expectations that the European Central Bank will raise rates by 25 basis points at its meeting next week.

"The ECB is likely to opt for an 'insurance' rate hike," said Carsten Brzeski, global head of macro at ING.

"Not that a rate hike will do a lot to affect inflation expectations, but it would be a symbolic move, stressing the ECB's determination to act."

Among other important movers, Abivax slumped 43.6% after the French drugmaker published the late-stage trial results for its inflammatory bowel drug, with investors focusing on safety concerns even as the treatment showed strong efficacy.

Prosus shares rose 9.4% after the Financial Times reported Tencent, the largest asset in the Dutch tech investor's portfolio, is set to launch an embedded AI agent for its messaging platform WeChat's 1.4 billion Chinese users.

British American Tobacco slipped 2.5% after the Dunhill cigarette maker flagged volume weakness in the heated tobacco and cigarette industry.

Meanwhile, a European Parliament committee voted to remove EU import duties on many U.S. goods, a step towards complying with the trade deal agreed with the United States last year.

(Reporting by Utkarsh Tushar Hathi and Johann M Cherian in Bengaluru; Editing by Janane Venkatraman and Alex Richardson)