European stocks advanced as renewed efforts to broker a peace agreement between Ukraine and Russia lifted market sentiment. Traders also assessed the latest batch of U.S. economic data for clues on the Federal Reserve's next policy moves.

The Stoxx Europe 600 Index closed 0.9% higher, nearing its intraday peak. Earlier optimism about a potential peace deal was reinforced by gains on Wall Street. However, Ukrainian President Volodymyr Zelensky noted that discussions with the U.S. are still ongoing.

Construction and retail stocks outperformed, while energy and technology sectors lagged. Kingfisher Plc, a home improvement retailer, surged 6% after raising its profit guidance. ABN Amro Bank NV climbed 6.5% after announcing plans to cut nearly 20% of its workforce to boost profitability.

European markets had already risen on Monday following dovish remarks from Fed officials, with Governor Christopher Waller signaling support for a December rate cut. Data released Tuesday showed U.S. wholesale inflation rebounded month-on-month in September, reflecting higher energy and food costs. Meanwhile, private-sector employment figures indicated a cooling labor market.

Money markets currently price in an 80% probability of a Fed rate cut in December.