FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, August 27, 2025. REUTERS/staff/File Photo

By Johann M Cherian

(Reuters) -European shares edged higher on Thursday as expectations of an imminent interest rate cut by the U.S. Federal Reserve calmed markets, although travel and leisure stocks fell after British budget airline Jet2's weak forecast.

The pan-European STOXX 600 edged up 0.18% to 547.74 points at 0835 GMT. Travel and leisure fell 1% to lead declines among sectors, with Germany's TUI down 2.1% and Easyjet off nearly 4%.

Jet2's shares lost a quarter of their value after the British low-cost airline forecast full-year operating profit towards the lower end of its expectations.

Chris Beauchamp, chief market analyst at IG Group, said the travel outlook continues to remain somewhat uncertain as consumers may crimp on spending given the possibility of higher inflation in Europe for the rest of the year.

Concerns over debt-driven fiscal spending in developed economies, which reemerged this week and triggered an equity market selloff, subsided as dovish remarks from Federal Reserve policymakers and signs of labor market weakness raised hopes of an early U.S. interest rate cut.

"With the yields having calmed down today, perhaps again, there's a sense that this bit of an early autumn, late summer panic seems to have subsided just a little bit," Beauchamp said.

Still, longer-dated European bond yields are near mutli-year highs and focus will be on France with the government likely facing a collapse next week after it pushed for a budget squeeze in 2026. September is also a historically a tough period for markets.

Sanofi slid nearly 10% to the bottom of the STOXX index after the late-stage trial data for French drugmaker's experimental inflammatory disease drug amlitelimab fell short of market expectations.

The broader healthcare sector slipped 0.2%, while France's CAC 40 index lost 0.5%.

Volvo Cars lost 2.3% after the car maker's August sales were down 9% from a year earlier, while private equity manager CVC Capital lost 3.8% after reporting first half results.

Porsche slipped 0.6% as the luxury car maker's stock was to be relegated to the German mid-caps index following recent losses in its shares, hurt by U.S. import tariffs and weakening demand in key market China.

Investors will also focus on a weekly jobless claims report out of the U.S. later in the day ahead of the pivotal nonfarm payrolls data for the month of August on Friday.

(Reporting by Tristan Veyet in Gdansk and Johann M Cherian in Bengaluru; Editing by Nivedita Bhattacharjee and Saumyadeb Chakrabarty)