European shares edge higher

The pan-European STOXX 600 index was up 0.2% at 640.70 points

European shares edged higher on Thursday ‌as gains in defensives countered a decline in AI-related stocks.

The pan-European STOXX 600 index was up 0.2% at 640.70 points, as of 0756 GMT, with food and beverage, ​personal and household goods, and healthcare among the top gainers. The benchmark index hovered near a ​record high.

The STOXX 600 technology index dropped 2%, led by Soitec, down 4.5%, and ⁠Aixtron, down 5.1%, as AI-linked stocks declined after sharp losses in Asia and on U.S. stock market overnight. ​Europe’s smaller exposure to tech stocks helped limit its drag on the STOXX benchmark.

The question now is whether ​all the good news around that spending has already been priced into the suppliers. Those stocks have had a very strong run, that is why markets are starting to get a bit nervous, said Daniel Coatsworth, investment analyst at AJ Bell.

The ​next round of quarterly earnings from the tech sector should provide much more clarity on whether demand ​remains strong or is beginning to slow, he said.

Analysts also said the rally, which has been concentrated in tech stocks, is likely ‌to broaden ⁠to other sectors as oil prices ease.

We believe there is room for the rally to broaden as investors look beyond AI-led leaders toward areas supported by structural growth, policy support, and a brighter cyclical outlook, UBS analysts said in a note.

Data on Wednesday showed euro zone inflation rose less than expected in June, while European Central Bank President Christine Lagarde said risks to inflation and ​economic growth were now more balanced than a few weeks ago as oil ​prices dropped.

However, traders ⁠continue to expect the ECB to lift interest rates by at least another 25 basis points before the year ends, LSEG-compiled data shows.