By Sruthi Shankar and Julien Ponthus
Hopes of a COVID-19 vaccine pulled European stocks from losses earlier on Wednesday, after fears of a no-deal Brexit and anxieties relating to the European Union's recovery fund had weighed on sentiment.
Ending a choppy session, the pan-European STOXX 600 index rose 0.2%, with blue-chip indexes in Paris, Milan and London down about 0.2%
Markets on both sides of the Atlantic got a boost as a COVID-19 vaccine developed by Pfizer Inc and German biotech firm BioNTech showed promise and was found to be well tolerated in early-stage human trials.
A series of business surveys released earlier showed broad improvements in manufacturing across Europe and Asia as economies opened up, with IHS Markit's final euro zone Manufacturing Purchasing Managers' Index (PMI) moving closer to the 50-mark separating growth from contraction in June.
Improving economic data out of the United States also buoyed sentiment.
"The coronavirus vaccine news coupled with ADP datapoint are acting as positive catalysts, lifting investor sentiment," said Stephane Ekolo, a strategist at TFS Derivatives.
The STOXX 600 shed more than 1% in afternoon trading as German Chancellor Angela Merkel warned that there was a possibility that no deal would be agreed between the European Union and Britain, with "very limited" progress made in negotiations about their future relationship.
This comes as rating agency S&P Global cut its UK forecasts for the year again and warned of a possible "perfect storm" formed by a second wave of coronavirus infections and a no-deal Brexit.
Investors were also anxious about the European Union member states approving a 750 billion euro recovery fund at a summit later this month.
Morning trading in some European markets, including Germany's DAX and Austria, was hit by a "technical issue" with the Frankfurt-based cash market system Xetra, exchange operator Deutsche Boerse said.
After a nearly three-hour outage, the DAX was down 0.4% and the Austrian index rose 0.3%.
Among individual stocks, Swiss speciality chemicals maker Clariant jumped 7% as it completed the $1.6 billion sale of its masterbatches unit to PolyOne Corp, allowing the payment of a special dividend amounting to $3 per share.
Energy firms such as BP and Royal Dutch Shell rebounded from losses in the previous session as oil prices rose after a report showed U.S. crude stockpiles posted a bigger drop than expected. [O/R]
Travel & leisure stocks were the top gainers.
(Reporting by Sruthi Shankar in Bengaluru; Editing by Sriraj Kalluvila and Alexandra Hudson)