European shares rise with Germany's DAX hitting record

By Ankika Biswas and Sruthi Shankar

(Reuters) -European stocks rose on Friday and Germany's blue-chip index hit a record high as hopes of progress in U.S. debt ceiling talks boosted risk sentiment, although negotiations appeared to have reached an impasses moments after markets closed.

The DAX, which houses Germany's top 40 companies, closed 0.7% higher, after rising as far as 16,331.94 earlier in the day.

The pan-European STOXX 600 index also rose 0.7% to a more than one-year high, with financial stocks leading gains.

Talks on Capitol Hill on raising the debt ceiling had appeared to be moving forward, with Democrat negotiators saying they made "steady progress" toward a deal that would avoid a default.

However, the lead Republican negotiator later said talks had paused, with the White House saying a deal remains possible.

"The market seemed to be going into this weekend thinking that the talks were going to move toward...an agreement, said Quincy Krosby, chief global strategist at LPL Financial.

"What you're seeing now is the Republicans saying, 'no, this is not acceptable', and they just staged a walkout."

Separately, Federal Reserve Chairman Jerome Powell said the path for monetary policy has grown less certain after just over a year's worth of aggressive rate rises aimed at countering inflation, while European Central Bank President Christine Lagarde stressed the need for the ECB to keep rates high.

Big European companies have delivered significantly stronger than expected first-quarter results, defying the economic backdrop of surging inflation and rising interest rates.

Nonetheless, worries about that global economy, falling customer demand and margin pressures persist.

Shares of semiconductor companies such as AMS and Nordic Semiconductor rallied more than 5% as Swiss and Norwegian markets reopened after Thursday's holiday.

Troubled Swedish real estate group SBB fell 5.7% after Goldman Sachs cut its price target by 50% to 5 Swedish crowns. The stock has shed more than half its value this month on concerns about the group's debt.

European sports retailers JD Sports Fashion, Adidas and Puma fell between 3.3% and 7.8% after Foot Locker Inc trimmed its annual sales and profit forecast.

Data showed German producer prices rose slightly more than expected to 4.1% in April, on a year-on-year basis.

Greece is headed for what is likely to be an inconclusive parliamentary election on Sunday, while ratings agency Moody's will review Italy's credit rating, with a chance of a downgrade to "junk", although analysts say this is unlikely.

(Reporting by Sruthi Shankar, Johann M Cherian, Ankika Biswas and Caroline Valetkevitch in Bengaluru; Editing by Savio D'Souza and Saumyadeb Chakrabarty, Kirsten Donovan)