Feb 18 (Reuters) - European stocks surged to fresh record highs on Wednesday, propelled by a rally in defence and banking shares as investors assessed corporate earnings and reports of a potential leadership transition at the European Central Bank.
The pan-European index closed 1.2% up at 628.69 points, with all major regional benchmarks finishing in positive territory.
The defence sector climbed 2.9%, with BAE Systems adding about 4% after reporting a better-than-expected jump in full-year operating profit, as global demand swelled its order backlog to a record 83.6 billion pounds ($113.50 billion).
The sector gained additional momentum from the abrupt end of peace talks between Ukraine and Russia, alongside mounting concerns over potential conflict between the U.S. and Iran.
Meanwhile, a Financial Times report said Christine Lagarde plans to step down as president of the European Central Bank before the 2027 French presidential elections.
Lagarde had not yet decided on the exact timing of her departure but was keen that Emmanuel Macron and German Chancellor Friedrich Merz be the key European leaders choosing who succeeds her, the FT said, citing a person familiar with the matter.
"The ECB is in quite a stable position right now and I think Lagarde suggesting that she will leave early, is also going to help engender stability given Macron and Merz in place in France and Germany," said Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management.
"The ECB is not likely to change course dramatically regardless of who the successor is, and I think that the likelihood of political influence on the central bank is lower in the Euro zone than it is in some other countries."
Sentiment was also stabilising this week after a global selloff since late January hurt multiple sectors over AI-disruption concerns. Banks rose over 2%, rebounding from sharp losses in the week before.
Among others, Glencore climbed 4.5% after the miner announced it would return $2 billion to shareholders despite reporting slightly lower earnings.
Amrize shares jumped 12.8% to a record high after the building materials firm announced $1 billion share repurchase program and special one-time dividend on Tuesday.
Mediobanca added 5.7% after Monte dei Paschi di Siena (MPS) said it will take full control of the lender, ending weeks of uncertainty over the future of the merchant bank.
A 7.1% fall in Bayer limited gains, after the German pharmaceutical firm said it had reached an agreement worth as much as $7.25 billion to resolve tens of thousands of lawsuits claiming that its Roundup weedkiller caused cancer.
Chemicals and food ingredients maker IMCD dropped 4.7% after fourth-quarter results missed expectations.
(Reporting by Avinash P and Johann M Cherian in Bengaluru; Editing by Sherry Jacob-Phillips, Nivedita Bhattacharjee and Shreya Biswas)
By Avinash P, Johann M Cherian and Ragini Mathur
