European stocks close at record high levels

The pan-European STOXX 600 added 0.6% at 592.78, edging ever closer to the 600 points milestone

European stocks logged a second straight record close on Tuesday, lifted by banks and commodity-linked shares, although gains were capped by thin, year-end trading.

The pan-European STOXX 600 added 0.6% at 592.78, edging ever closer to the 600 points milestone.

Banks jumped 1.3%, while aerospace and defence rose 1.4%.

The defence index has scored a run of record highs this year and, despite easing back since October, is still on course for its biggest annual gain since 1996, buoyed by pledges of higher defence spending across Europe.

Basic resources led the STOXX 600 higher, up 1.7%, as silver and gold steadied after a sharp retreat from record highs.

Energy rose 0.7%. Oil prices jumped more than 2% in the prior session.

All STOXX 600 sub-indexes were in the green, with Technology gaining 0.7%.

Moves across other markets were higher, with the benchmark index in London up 0.7% and Germany’s DAX up 0.6%.

As 2025 draws to a close, the index is on track for its strongest annual performance since 2021, bolstered by a combination of declining interest rates, Germany’s commitment to fiscal expansion, and investors diversifying away from premium-valued U.S. technology stocks.

Investors have been looking beyond the usual suspects for value and diversification, and the world continued to be beset with geopolitical turmoil and fears of an AI bubble, said Danni Hewson, head of financial analysis at AJ Bell.

Many European exchanges will be shut on Wednesday ahead of the New Year holiday.

With the week compressed by holidays, trading is expected to stay light.

The current market mood is very strong and positive for European equities, and we expect more of the same strong performance in 2026, particularly for defence stocks and European banks, said Kathleen Brooks, research director at XTB.