April 10 (Reuters) - The European stock benchmark rose on Friday, on course for its third weekly gain, as investors were cautiously optimistic of the weekend U.S.-Iran talks, despite signs of strain in the fragile ceasefire agreement.
The pan-European index STOXX 600 (.STOXX),was up 0.4% at 614.98 points, as of 0831 GMT. So far, it has gained 2.8% this week and about 7% in three weeks.
Major regional bourses also traded higher, with Germany's DAX (.DAXI),and France's CAC 40 (.FCHI),both up 0.2%.
European stocks marked their strongest single-day rally in over four years on Wednesday following news of the Middle East ceasefire. It allowed the STOXX 600 to recover some losses accumulated since hostilities erupted in late February.
Investor optimism on Friday was underpinned by Israel signalling a potential diplomatic opening on Thursday, saying it was ready to begin direct talks with Lebanon as soon as possible.
"That's significant because Lebanon has been a potential key stumbling block around the ceasefire," said Deutsche Bank analysts in a note.
"Those hopes for a de-escalation in Lebanon helped ease concerns that the broader ceasefire could fall apart ahead of this weekend's talks."
The delicate two-week ceasefire between the U.S. and Iran faced mounting pressure a day before scheduled negotiations in Pakistan on Saturday.
Washington has accused Tehran of violating commitments regarding the Strait of Hormuz, while Iran claimed that Israel breached the ceasefire terms by attacking Lebanon.
In Europe, investors will closely monitor developments from the talks, which could influence market direction next week as earnings season picks up pace.
Companies included on STOXX 600 are expected to report growth of 4.2% in first-quarter earnings, on average, according to LSEG data, compared to the 4% rise estimated last week.
That is mostly due to the energy sector, whose earnings are forecast to jump by 23.6% year-on-year. On Friday, however, energy stocks (.SXEP),fell 0.3%.
On Friday, healthcare (.SXDP),and technology (.SX8P),stocks led the gains, rising 1.2% and 1%, respectively.
Luxury sector (.STXLUXP),gained 1.3% as Italian group Brunello Cucinelli (BCU.MI),rose 4.7% after its first-quarter revenues beat expectations.
Among other movers, Sodexo (EXHO.PA),shares plunged 13% to their lowest in six years after the French food caterer slashed its annual sales and profitability targets.
Repsol (REP.MC),fell 4% after the Spanish energy company published a worse-than-expected first-quarter trading update.
Later in the day, market participants will closely scrutinise U.S. inflation data for insights into how the ongoing conflict might be affecting economic fundamentals.
Reporting by Ragini Mathur in Bengaluru; Editing by Harikrishnan Nair
