By Kit Rees
LONDON (Reuters) - European shares crept higher on Tuesday, brushing off geopolitical tension as attention turned to deal-making after Aveva's tie-up with Schneider Electric (PA:SCHN), while commodities-related sectors and health stocks underpinned broader gains.
The pan-European STOXX 600 index rose 0.4 percent, recovering after a three-day winning streak ended on Monday, following North Korea's sixth and most powerful nuclear test on Sunday. Euro zone blue chips gained 0.5 percent.
Britain's FTSE 100 index was up 0.3 percent and Germany's DAX rose 0.9 percent.
Energy stocks were among the top-gaining sectors, while basic resources also rose as oil and copper prices rallied.
Health stocks also helped underpin the rise, led higher by Germany's Merck (NYSE:MRK) KGAA, which said that it was considering selling its consumer health business.
British mid caps jumped 0.4 percent after shares in British engineering software firm Aveva rocketed more than 24 percent. Aveva agreed to combine with Schneider Electric's software business, creating a London-listed software firm worth more than 3 billion pounds.
Shares in Schneider Electric advanced 1 percent.
On the macroeconomic side, a survey showing that euro zone business activity remained strong in August was the latest evidence that the bloc's recovery is maintaining its pace. The recovery has been a key support behind the robust earnings growth of the past two quarters.
Strategists at UBS said they saw 2017 as the first year of a new profit cycle for European earnings, and not a "false dawn".
Investors were also looking ahead to a meeting of the European Central Bank on Thursday, where policymakers are set to make a decision about interest rates and the ECB's asset purchasing programme.
"The market is looking through what is happening in North Korea towards Thursday and the ECB, although it's been very well telegraphed from certain officials that the market should really push expectations of a taper forward," said Jonathan Roy, advisory investment manager at Charles Hanover Investments.
Though individual moves on the STOXX 600 were fairly muted, German drugs packaging firm Gerresheimer was among the biggest fallers, extending losses to trade 2.5 percent lower after Deutsche Bank (DE:DBKGn) downgraded the stock to "hold" from "buy" on the back of a difficult market environment.
It was joined by satellite company Inmarsat (LON:ISA), which dropped 4.2 percent after broker Numis began its coverage of the stock with a "sell" rating, with analysts saying that they were cautious over Inmarsat's revenue prospects and margin outlook.
