STOXX 600 closes flat amid Middle East escalations

The pan-European STOXX 600 held steady at 521.14 points at close after trading nearly flat throughout the session

Europe's STOXX 600 closed flat on Wednesday as investors shied away from risk-taking amid more strife in the Middle East, although advancing energy shares capped the losses.

The pan-European STOXX 600 held steady at 521.14 points at close after trading nearly flat throughout the session.

The energy sector added 1.6% and clocked its best session in over eight weeks as oil prices rose amid escalating conflict in the Middle East.

The hostilities also boosted defence firms including Germany's Rheinmetall and Britain's BAE Systems, which gained more than 1% each, while Sweden's Saab rose 2.5%.

Euro area government bond yields, which move inversely to prices, gained a day after long-dated yields posted their biggest daily decline since mid-June. Utilities, often traded as a bond proxy, were the lead decliner amongst major STOXX sectors, down 1.6%.

On the data front, euro zone unemployment for August stood at 6.4%.

The low rate remains remarkable given the sluggish economic environment that the euro zone has been in since late 2022, according to Bert Colijn, chief economist, Netherlands at ING.

But labour demand remains high despite a weak economic environment, Colijn said.

Euro zone growth could be weaker in the near term than the ECB now expects but the recovery should still pick up pace later on, ECB Vice President Luis de Guindos said.

Earlier in the day, Citigroup said it now expects the European Central Bank to reduce interest rates by 25 bps in its October meeting, with subsequent cuts expected in December and through the start of 2025.

The European Central Bank will meet in less than two weeks to take a call on borrowing costs.

Among other stocks, Britain's JD Sports Fashion declined 6.1% after U.S. firm Nike withdrew its annual outlook. The British sportswear retailer beat consensus forecast for first-half profit.