European defence stocks fell yesterday (16 December) after US officials offered the day before to provide Nato-style security guarantees for Kyiv under a proposed peace deal with Russia, following two days of talks in Berlin.

"I think we're closer now than we have been ever," US President Donald Trump said, although territorial disputes remain the main issue to be settled with Russia, which has not commented yet.

Shares of German tank maker Rheinmetall, Sweden's Saab and Italy's Leonardo were among the biggest fallers on Europe's benchmark STOXX 600 index, though the declines ranging from 4% to 6% were relatively contained as traders looked to buy the dip in a sector with a strong growth outlook.

Defence spending in Europe is bound to expand regardless of how the Ukraine-Russia situation evolves, two traders told Reuters.

The European aerospace and defence index, which has more than tripled in value since Russia invaded Ukraine in February 2022, was down around 2% at 0926 GMT.

But analyst Frank Sohlleder from brokerage ActivTrades, talking about Rheinmetall, said an end to the Ukraine war could dampen arms orders, placing the German group under "increasing pressure at a high level".

Rheinmetall sits at the bottom of the country's blue-chip index for the second day in a row, and has underperformed most of the index in the past three months, Sohlleder said.

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