European shares close at record high driven by defence stocks

European shares closed at a record high on ⁠Friday, driven by defence and insurance stocks, as investors turned optimistic with just a handful of trading days left before the end of the year after a selloff earlier this week. The pan-European STOXX 600 rose 0.4% to 587.50, a day after ‌logging its best ‌one-day performance in more than three weeks and ending the week up 1.7%. The index is on track for its best annual performance ‌since 2021, aided by falling interest rates and global investors diversifying from premium-valued U.S. technology stocks. Major regional markets were also higher, with Germany's DAX up 0.4% and London's FTSE 100 gaining 0.6%. Aerospace & defence stocks led sector gains, with heavyweight banks adding 0.8%. British lenders Standard Chartered, Barclays and HSBC all gained between 0.9% and 1.4%. The banking index has risen 65% so far this year, while defence is up almost 60%. "Banks have been the big winner this year and we believe that they will ‌be winners ‍once again next year," said Robert Schramm-Fuchs, European equities portfolio manager at Janus Henderson, adding ‍that they were still trading at a discount to their historic ‌valuation in Europe. "This does not make any sense, given the supportive environment banks find themselves in, including excess capital position and steep yield curves," he said. Personal and household goods and retail shares were the biggest decliners. Puma, Adidas and JD Sports fell between 1.2% and 3.5% after peer Nike tumbled on the impact of weak China sales on its quarterly results. Equities rebounded on Thursday after two days of tech-led losses as an unexpected slowdown in U.S. consumer price inflation strengthened expectations for further ‍Federal Reserve interest rate cuts, and the European Central Bank maintained a hawkish stance. "We had a little bit of a wobble towards the end of the year these last ‍few weeks," said Daniela ⁠Hathorn, senior market analyst at ⁠Capital.com. "A lot of the downside has been focused around overinvestment, realising that maybe these (tech) companies are not going to be able to deliver the amount of growth that has been priced in for the next few years." Cruise operator Carnival's London-listed shares were the day's strongest performers, jumping 16.6% to the top of STOXX 600 after it posted an upbeat annual profit forecast and reinstated its quarterly dividend. The European Union's decision to fund lending to Ukraine through borrowing was welcomed by markets, according to analysts, after the use of joint debt was approved while avoiding a legally contentious plan to use Russia's assets.