A Christmas Tree stands next to the German share price index DAX graph at the stock exchange in Frankfurt, Germany, December 11, 2025. REUTERS/staff

By Ragini Mathur and Purvi Agarwal

Dec 12 (Reuters) - European shares were set for a third week of gains on Friday, tracking gains on Wall Street as investors embraced the Federal Reserve's interest rate cut and maintained positive expectations for additional cuts in 2026.

The pan-European STOXX 600 was up 0.4% at 583.56 by 0931 GMT, a day after logging its biggest one-day jump in over two weeks. It is within striking distance of an intraday record high.

Major regional bourses were also higher, with Spain's IBEX up 0.8% and Germany's DAX 0.6% higher.

Banks, set to outperform peers this week, gained 0.7%. UBS jumped 4.4% to hit a 17-year high after Swiss lawmakers floated a compromise on new capital rules for the bank to ensure it remains internationally competitive.

Markets tracked gains on Wall Street overnight, where the S&P 500 and the Dow closed at record highs, following comments from the Fed that investors viewed as less hawkish than expected.

"Markets are very much looking at 2026... any sign that businesses and consumers feel more confident to borrow money - naturally that's (a) good backdrop for the financial sector," said Daniel Coatsworth, investment analyst at AJ Bell.

Investors also shrugged off reviving worries around lofty valuations of tech and artificial intelligence companies after forecasts from Oracle and Broadcom failed to impress investors.

"The US tech sell-off was short-lived, helping to lift the broader market mood... that new-found optimism, or perhaps relief, extended to Europe," said Coatsworth.

It powered a risk-on move, with investors moving out of traditionally defensive sectors such as consumer staples and healthcare, among the only decliners on the index.

Basic resources stocks advanced 0.5% as copper prices rose to a record high, bolstered by top consumer China's promise of a fiscal boost next year and the interest rate cut by the Fed.

Industrials gained 0.8%, while travel and leisure inched up 1.6%. Lufthansa advanced 5.5% after Kepler Chevroux upgraded the carrier's stock to 'buy' from 'hold'.

Retailers Adidas and Puma gained over 2% each after U.S. peer Lululemon Athletica raised its annual profit forecast.

Poland's biggest fashion retailer LPP topped the STOXX 600 with an 11.2% gain after its third-quarter results.

Wendel was up 5.8% on the private equity firm's plans to return more than 1.6 billion euros ($1.9 billion) to shareholders by 2030.

Next week, attention will shift to the European Central Bank's final rate decision of the year, after hawkish comments from policymaker Isabel Schnabel on Monday opened the door to a rate hike as the next move, signalling a possible divergence from the Fed's approach.

($1 = 0.8521 euros)

(Reporting by Purvi Agarwal and Ragini Mathur in Bengaluru; editing by Eileen Soreng and Shinjini Ganguli)