Defensive sectors support European shares after two

© Reuters. The Aihua foreign exchange mt4app DownloadGerman share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, December 7, 2021. REUTERS/Staff

By Sruthi Shankar

(Reuters) -European stocks inched higher on Wednesday after marking their strongest two-day gain in more than a year, with defensive stocks in the lead as investors weighed the effectiveness of existing vaccines against the Omicron coronavirus variant.

After jumping 3.8% over the past two days, the region-wide STOXX 600 index rose 0.3% in morning trade.

Frankfurt-listed shares of BioNTech, which makes COVID-19 vaccines with Pfizer (NYSE:PFE), fell 6.3% after a study showed that the Omicron variant can partially evade protection from two doses of their vaccine.

Sectors considered more stable during times of economic uncertainty, such as healthcare, food & beverages and utilities, were among the top gainers.

"The evidence is starting to become clear that it's a variant that is more transmissible but less damaging," said Keith Temperton, sales trader at Forte Securities.

"The initial panic was all about government response to the variant, and the market is seeing through that. It's a thin market at this time of the year, it doesn't take much to take stocks higher."

The STOXX 600 has recovered all of the losses that were driven by the detection of the new variant on Nov. 26, and is now trading less than 2% below its all-time high.

U.S. inflation data on Friday and a slew of major central bank meetings next week could set the tone for financial markets, as investors try to gauge when policymakers will start withdrawing pandemic-era stimulus.

L'Oreal rose 1.3% after Swiss food company Nestle said it would cut its stake in the French cosmetics brand to about 20% by selling shares worth 8.9 billion euros ($10 billion).

Shares in Nestle rose 1.5% to hit an all-time high, boosting the Swiss index to fresh peaks.

Travel shares fell as tour operator TUI's UK-listed shares slumped 3.2% after it posted an annual loss of over 2 billion euros ($2.26 billion).

Other economy-linked sectors such as oil & gas, banks and automakers also fell.

German meal-kit company Hellofresh slid 6% after an underwhelming outlook for 2022 earnings.

Chipmaker Infineon (OTC:IFNNY) Technologies dropped 3.5% and STMicroelectronics slipped 1.1% after Morgan Stanley (NYSE:MS) downgraded the stocks to "equal-weight".

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