By Shashwat Chauhan and Pranav Kashyap
(Reuters) -European shares closed higher on Tuesday, boosted by earnings-driven gains across several pockets of the market, with focus squarely on the Federal Reserve's upcoming rate verdict and the subsequent outlook for monetary policy.
The pan-European STOXX 600 index finished 0.5% higher, with the euro zone bank index up 1.2%, one of the top gainers among the major STOXX sectors.
Intesa Sanpaolo (OTC:ISNPY) jumped 3.5% after Italy's biggest bank raised its profit outlook, posting stronger than expected quarterly earnings and signalling additional investor rewards ahead.
Raiffeisen Bank International added 3.7% after the Austrian lender beat estimates on second quarter profit.
Construction and materials gained 1.3% with Spanish builder ACS up more than 4% after reporting a 8% rise in first-half net profit.
On the data front, the euro zone economy grew slightly more than expected in the three months to June, but a mixed underlying picture and a string of pessimistic surveys cloud the outlook for the rest of the year.
"With yet another small upside surprise to the GDP data, there is also a case to aim off the surveys a bit," Simon Wells, chief European economist at HSBC, wrote in a note.
"With growth broadly at trend and inflation heading only slowly to target, there is little evidence to suggest that monetary policy is highly restrictive."
Data showed the German economy unexpectedly contracted in the second quarter after skirting a recession at the beginning of the year, with a rise in inflation in July, underlining the continuing struggles of the euro zone's biggest economy.
Investor focus this week will remain on the Federal Reserve, which concludes its two-day rate-setting meeting on Wednesday, with investors anticipating a signal that it could start cutting interest rates in September.
The Bank of England (BoE) will also announce its latest verdict on monetary policy later this week.
Among other headlining stocks, Novo Nordisk (NYSE:NVO) gained 1.4% after the Danish obesity drugmaker posted a study showing Ozempic reduced tobacco-related health complications among smoking patients with type 2 diabetes.
Britain's St James's Place surged 24.8% to the top of the STOXX 600 after the wealth manager outlined a six-year plan to slash costs and revamp its services.
Poste Italiane advanced 4.3% as the state-owned postal service group slightly raised its full-year profit goal after operating profit fell less than anticipated in the second quarter.
On the flipside, Britain's Diageo (LON:DGE) slid 5.1% as the world's top spirits maker warned that challenges could persist into next year after it missed full-year profit expectations.