European defense stocks slide on reports of Ukraine-Russia deal progress

Shares in Europe nudged higher on Friday morning as investors weighed the fragile ceasefire between the U.S. and Iran, and the potential for successful peace negotiations in Ukraine.

The pan-European Stoxx 600 index was seen trading up 0.7% shortly after 11:30 a.m. in London (6:30 a.m. ET), with most regional sectors and major bourses in positive territory.

European defense stocks fell sharply after Ukraine's senior negotiator with Russia signaled that a resolution to the conflict could be in sight.

Rheinmetall, Germany's largest arms maker, was 5.9% lower, while tank manufacturer Renk was down 5.8% and Hensoldt, the military tech and surveillance specialist, tumbled 6%. Other defense stocks in the red included Swedish fighter jet maker Saab, which dipped 3.3%, and the U.K.'s BAE Systems, which was 3.6% lower.

Kyrylo Budanov, a former military spy and one of Ukrainian president Volodymyr Zelenskiy's key aides, expressed optimism that negotiations could be nearing a settlement, according to a Bloomberg report Friday.

On Thursday, Israeli Prime Minister Benjamin Netanyahu said that the country had agreed to negotiate with Lebanon "as soon as possible." Tehran's parliamentary speaker Mohammad Bagher Ghalibaf cited Israel's continued attacks on Lebanon as a violation of the ceasefire agreement between the U.S. and Iran.

Asian markets rose overnight following the news, with South Korea's Kospi advancing 1.75%, while the small-cap Kosdaq was 1.65% higher.

Japan's Nikkei 225 gained 1.88%, while the Topix was flat. Japanese Prime Minister Sanae Takaichi said Friday that the country plans to release 20 days' worth of oil reserves from May onwards, Reuters reported. Japan had enough oil reserves for 230 days as of April 6.

European markets struggled for direction on Thursday, finishing lower as the fragile truce agreed between the U.S. and Iran already showed signs of strain.

German ‌inflation accelerated ‌to 2.8% in ​March, according to data released Friday, confirming provisional results.

"The significant increase in the prices of energy products is driving up inflation," said Ruth Brand, President of the Federal Statistical Office. "In particular, motor fuel and heating oil prices have risen sharply for consumers since the start of the Iran war."

— CNBC's Lisa Kailai Han and Justina Lee also contributed to this report.