The IBEX 35 opened slightly higher on Thursday in a session dominated by Middle East tensions, doubts over the artificial intelligence rally, and anticipation of the U.S. employment report due on Friday.

Developments in the Middle East kept investors on edge, even as oil prices retreated from recent highs following a ceasefire agreement between Israel and Lebanon. Meanwhile, talks between Tehran and Washington showed little progress as hostilities flared up again this week.

The pact between Lebanon and Israel is contingent on a total ceasefire by the Iran-aligned Hezbollah militia and the evacuation of all its forces from the southern Litani sector. While both parties had agreed to a ceasefire last month, fighting has persisted.

'Although this pact seeks to unblock negotiations between Washington and Tehran to reopen the Strait of Hormuz, the viability of the truce is extremely fragile: political contacts remain stalled, sporadic fighting continues, Hezbollah has not confirmed its adherence, and Iran is threatening to strike Israeli territory if the bombing of Beirut continues,' noted analysts at Renta 4.

'While U.S. President Donald Trump downplays security risks in the strait and faces domestic political pressure following a House vote to curb U.S. military involvement, financial analysts warn of market over-optimism. They project that Brent could climb to 130 USD/barrel if the maritime route remains blocked amid a steady decline in global crude inventories,' they added.

Market sentiment was further dampened by comments from the Israeli Defense Minister, who indicated on Thursday that Israel will continue its operations in Lebanon for the time being despite the ceasefire.

In parallel, the artificial intelligence frenzy that has supported the market in recent weeks showed signs of exhaustion. Shares of U.S. chipmaker Broadcom tumbled 11% in after-hours electronic trading after disappointing Wall Street with its second-quarter revenue on Wednesday.

Meanwhile, the market remains focused on Friday's U.S. labor report, which could provide clues regarding the Federal Reserve's next moves.

On Wednesday, the ADP private sector employment report showed stronger-than-expected growth, fueling a rebound in U.S. interest rates on expectations that the Fed might adopt a more hawkish stance due to inflation risks.

In this regard, Dallas Fed President Lorie Logan stated on Wednesday that an increase in borrowing costs might be necessary to combat inflation.

If May's non-farm payrolls data exceeds estimates, U.S. yields will likely continue to rise, exerting downward pressure on both fixed income and equity markets.

Against this backdrop, at 0705 GMT on Thursday, Spain's benchmark IBEX 35 was up 65.70 points, or 0.36%, at 18,241.70 points, while the FTSE Eurofirst 300 index of leading European shares edged down 0.03%.

In the banking sector, Santander rose 0.55%, BBVA gained 0.72%, Caixabank advanced 0.35%, Sabadell fell 0.07%, Bankinter appreciated 0.18%, and Unicaja Banco climbed 0.21%.

Among large-cap non-financial stocks, Telefónica fell 0.46%, Inditex advanced 1.72%, Iberdrola dropped 0.33%, Cellnex declined 0.57%, and oil major Repsol lost 1.33%.

(Reporting by Tomás Cobos; editing by Benjamín Mejías Valencia)