Updates after markets close

By Tharuniyaa Lakshmi, Johann M Cherian and Shashwat Chauhan

July 14 (Reuters) - European shares ended higher on Tuesday, as a softer-than-expected U.S. inflation reading tempered some bets on a U.S. Federal Reserve interest rate hike, though escalating U.S.-Iran tensions and elevated crude oil prices kept a lid on gains.

The pan-European STOXX 600 index .STOXX closed 0.2% higher at 642.1 points, recouping losses after falling as much as 0.9% earlier in the day.

Basic materials .SXPP jumped 2.4%, as metal prices rallied against a weaker dollar after data showed U.S. consumer inflation slowed more than expected in June as energy prices retreated.

"Overall, the June data paint a fairly favourable picture of inflation, even if one should not over-interpret a single report. We see this as confirmation of our assessment that inflation has peaked," Commerzbank economists said in a note.

Traders now see only about a 10% chance of a quarter-percentage-point rate increase at the Fed's July 28 to 29 meeting, versus 35% before the report. However, odds of at least one 25-basis-point rate hike by year-end remain on the table.

For Europe, traders currently see the European Central Bank hiking rates as early as September amid lingering inflation concerns, according to LSEG-compiled data.

Oil prices trended higher on Tuesday after the U.S. re-imposed a naval blockade on Iran and as renewed attacks between Washington and Tehran heightened concerns over energy flows through the Strait of Hormuz.

European oil and gas stocks .SXEP climbed 1.3% tracking higher crude oil prices, while travel and leisure .SXTP slipped 1.3%.

The move is the latest complication that companies and investors will have to consider as they gauge the health of the economy and corporate outlook for the rest of the year, just weeks after a Mideast agreement seemed to end hostilities.

Energy giant BP BP.L said it expects stronger oil and gas prices, robust oil trading and higher refining margins to lift second-quarter earnings. Its shares gained 2.3%.

Software-related companies SAP SAPG.DE and Capgemini CAPP.PA fell 2.8% and 1.6%, respectively, amid global weakness in the software sector after U.S. firm IBM IBM.N warned the AI boom is squeezing software budgets .

Ericsson ERICb.ST dropped 12.6% after the Swedish telecom equipment maker's quarterly sales slightly missed estimates and it warned of rising component costs.

The U.S. earnings season kicked into high gear on Tuesday, with big bank earnings powering ahead in the second quarter. European banks .SX7P ended 0.8% higher, while financial services .SXFP climbed 1.2%.

Earnings season in Europe also picks up soon with tech giant ASML's ASML.AS results later this week which offer clues on the outlook for AI-driven demand.

Among others, Evotec EVTG.DE plummeted 24.1% after the drug discovery firm cut its 2026 outlook.

Mycronic MYCR.ST surged 15.3% after the electronics equipment maker raised its full-year guidance on strong AI demand.