May 28 (Reuters) - European stock markets closed lower on Thursday, but pared their sharp losses after Axios reported that the United States and Iran had agreed to extend a ceasefire and begin negotiations.

The pan-European STOXX 600 index fell 0.5 percent to 625.11, while major European stock exchanges also closed lower.

The announced agreement, which is contingent on approval from US President Donald Trump, helped calm markets after Iran targeted a US air base in Kuwait and Washington targeted what it said was an Iranian drone complex near the Strait of Hormuz.

Crude oil prices, which are a cause for concern in energy-dependent Europe, rose earlier in the day before paring their gains.

"A lot of the good news in this regard was factored in at the start of the week," said Kiran Ganesh, an analyst at UBS Global Wealth Management. "This reflects the relatively muted reaction we have seen in the markets to the ceasefire signals."

Market analysts say that better-than-expected corporate earnings have also supported stock prices since the March declines caused by the conflict, but risks remain.

The financial services sector led the losses. The banking sector fell by 1 percent and the insurance sector by 1.9 percent.

Shares in French semiconductor supplier Sweetec jumped 24.6 percent after it announced annual sales that exceeded market expectations.

Shares in defense companies rose, with Rink gaining 5.4 percent, Rheinmetall advancing 4.1 percent and Saab climbing 7.4 percent, as Canada and Norway sought to strike deals with European firms.