The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, August 13, 2025. REUTERS/staff/ File Photo

By Twesha Dikshit and Sukriti Gupta

(Reuters) -European shares closed at their highest level in more than two months on Thursday, with aerospace and defence stocks and financials providing the biggest boost as investors assessed a spate of corporate earnings.

The pan-European STOXX 600 index closed 0.6% higher, after touching a two-week intraday high.

Industrial stocks were among the biggest sectoral gainers, with aerospace and defence companies taking charge. The broader index gained 2.2% after coming under pressure ahead of Friday's summit between U.S. President Donald Trump and Russian President Vladimir Putin.

Richard Flax, chief investment officer at Moneyfarm, said that despite expectations of Europe spending more on defence, questions remained about when it would come through and how much would go to European firms.

Upbeat corporate earnings reports also aided sentiment. Insurers were up 0.9%, after trading near record highs touched last Thursday earlier in the session.

London's Admiral hit a record high, rising 6.6% after a strong first-half profit, while Aviva jumped 2.6% to its highest since December 2007, after raising its interim dividend after reporting stronger half-year operating profit.

Dutch payments firm Adyen slumped 4.9% after it cut its annual revenue forecast.

Most regional indexes traded higher, with Britain's FTSE reversing earlier losses to gain 0.1%.

Markets have gained in recent weeks on optimism around the Federal Reserve delivering an interest rate cut as soon as next month. However, U.S. economic data on the day erased expectations of a 50 basis point cut next month.

"There's kind of continued optimism about prospect for lower rates in the US... PPI figures today tempered things a little bit, but the expectation continues to be that we'll see rates come down," said Flax.

Data showed Britain's economy slowed less than expected in the second quarter after a strong start to 2025, despite U.S. trade tariffs and a weaker jobs market, offering some relief to Finance Minister Rachel Reeves.

Among others, Embracer slumped 23.4%, its worst day since May 2023, and fell to the bottom of the STOXX 600, after the gaming company reported a first-quarter operating profit and forecast annual earnings well below market expectations.

Thyssenkrupp tumbled 8.7% after the German conglomerate cut its full-year outlook for investments and sales, citing disruption from U.S. tariffs.

FLSmidth rose 6.7%, the most on STOXX 600, after the Danish mining and cement technology supplier reported second-quarter results and updated annual forecast.

Carlsberg fell 7.1% after the Danish brewer missed half-year profit and volume forecasts, and said it did not expect any improvement in the consumer environment this year.

(Reporting by Twesha Dikshit, Sruthi Shankar, Sukriti Gupta and Purvi Agarwal in Bengaluru; Editing by Rashmi Aich)