FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, August 11, 2025. REUTERS/staff/File Photo

By Johann M Cherian and Tristan Veyet

(Reuters) - European shares edged higher in choppy trading on Thursday, as investors cautiously awaited the European Central Bank's monetary policy verdict and a key inflation report out of the United States later in the day.

The pan-European STOXX 600 edged up 0.3% to 554.08 points, as of 0826 GMT.

Defence stocks led sectors higher with a 0.8% rise as investors weighed ongoing geopolitical tensions in the eastern part of the continent after Poland shot down a suspected Russian drone earlier in the week.

The main event for the day will be the European Central Bank's interest rate decision at 1215 GMT. Most economists are expecting no change to borrowing costs but investors will scrutinize President Christine Lagarde's remarks on how a fraught trade and political outlook influences policy.

"We're looking to see a partial upgrade to growth expectations today and perhaps further confirmation that inflationary pressure is subdued," Jeremy Batstone-Carr, a strategist at Raymond James Investment Services, said.

"The eurozone economy is proving resilient to U.S. trade tariffs, albeit that activity is below potential and likely to stay there for the remainder of 2025."

Rate-sensitive sectors such as banks and real-estate rose marginally.

Debt-driven fiscal spending has been a big concern for economies in Europe, which has sent longer-dated bond yields higher and pressured equities.

France has been at the forefront of these worries. Brokerage Citigroup has downgraded the country's equities to "neutral" from "overweight" ahead of a crucial rating review by Fitch on Friday. The CAC 40 index rose 0.7%.

Kering gained 1.7% after the Gucci owner said it will not fully buy Italian fashion brand Valentino until at least 2028, pushing back an expensive deal that has been weighing on the heavily indebted group.

Covestro rose 5.4% after Reuters reported that Abu Dhabi state oil giant ADNOC is readying remedies to address an EU subsidy investigation into its 14.7 billion euro ($17.19 billion) bid.

Later in the session, investors will shift their focus to U.S. consumer inflation data. Economists expect prices to have picked up in August, but that is unlikely to derail a much-anticipated rate cut from the Federal Reserve next week.

Italy's Buzzi topped the STOXX index, with a 7% jump after J.P.Morgan raised the construction group shares to "overweight" from "equal-weight".

Technip Energies rose 4.7% after the energy infrastructure company said it had agreed to buy U.S.-based chemicals group Ecovyst's Advanced Materials & Catalysts business for $556 million.

(Reporting by Tristan Veyet in Gdansk, Johann M Cherian in Bengaluru; Editing by Mrigank Dhaniwala)