European stock markets moved higher as traders focused on signs of further progress in negotiations between the United States and Iran. Hermes International SA shares fell 5.4% after analysts forecast that its upcoming first-half results would show pressure on profitability.

The Stoxx Europe 600 index closed up 0.7%. Banking stocks outperformed, while media and consumer goods shares lagged. The UK's FTSE 250 index ended nearly flat, having earlier fallen as much as 0.7%, after Prime Minister Keir Starmer stated he would resign to pave the way for Andy Burnham to seek the succession.

Investor risk appetite improved after European Central Bank President Christine Lagarde stated that the ECB did not need to take stronger measures in response to the impact of the Middle East conflict.

Brent crude oil declined, nearing $78 per barrel, due to "encouraging progress" in peace deal talks between the US and Iran, with negotiations planned to continue this week. Despite this, US President Donald Trump reiterated threats of strikes if Hezbollah continued attacks against Israel.

"Most of the good news related to the conflict is already priced in," said Geoff Yu, a senior macro strategist at BNY Mellon. "Oil has now taken a back seat, and financial conditions are more important."

European equities have gained 8.1% year-to-date, trailing behind the S&P 500's 9.2% advance.