CORRECTED-UPDATE 1-European shares hit record high as 2026 trading begins

Corrects analyst quote in paragraph 7 to say record highs, not record valuations

By Ragini Mathur

Jan 2 (Reuters) - European shares climbed to a fresh record high on Friday in the first trading session of 2026, building on the previous year's stellar gains, with defence stocks leading the way.

By 0942 GMT, the pan-European STOXX 600 .STOXX index rose 0.6% to 596.94, hovering close to the symbolically important 600-point milestone as investors returned from New Year celebrations. The index was poised for its third consecutive weekly gain.

The European benchmark finished 2025 with its best showing since 2021 on the back of falling interest rates, Germany's fiscal boost and a rotation out of U.S. tech names with lofty valuations.

Shares weathered a year of tariff turbulence, recovering from annual lows in April when U.S. President Donald Trump put blanket tariffs on trading partners, sending global markets wobbling.

On Friday, London's blue-chip FTSE 100 .FTSE index hit the symbolic 10,000 points marker for the first time.

"The main driver is that we've seen commodity prices continue to rise, and it's a sector that our clients are very interested in and one that shows great promise for the coming year," said Nick Saunders, CEO of trading platform Webull UK.

"From a logical point of view, a milestone of 10,000 is not important, but psychologically it is, as what we are seeing is that investors are keen to put money into the market without the fear of record highs."

Bourses across the region were mostly higher, though trading volumes remained thin. The market in Switzerland was closed on the day and will resume trading from next week.

Within the STOXX 600, defence stocks .SXPARO gained the most, advancing 2.4%.

Heavyweight banking shares .SX7E also provided support, up 0.8%.

Basic resources .SXPP shares were up 1.5%, while the energy index .SXEP rose 1.4%, tracking strength in precious metals and crude prices on the day. GOL/MET/L

On the flip side, real estate shares .SXQP were leading the losses, down 0.6%.

In other moves, shares of Orsted ORSTED.CO rose 4.4% after the Danish offshore wind developer said it was challenging the U.S. government's suspension of its $5 billion Revolution Wind project lease.

On the data front, euro zone factory activity retreated further into contraction territory in December as production decreased for the first time in 10 months.

(Reporting by Ragini Mathur in Bengaluru; Editing by Mrigank Dhaniwala and Ronojoy Mazumdar)

((Ragini.Mathur@thomsonreuters.com;))