European shares edged higher on Tuesday, hitting fresh two-year highs, driven by overnight gains on Wall Street, strong corporate updates and investor assessment of interest rate cut expectations in a busy week for markets.

The pan-European STOXX 600 index was up 0.3%, as of 0920 GMT, rising for the fifth straight session.

Finnish retailer Kesko surged 9.6% to lead the benchmark index after beating fourth-quarter profit estimates, while Danish medical equipment maker Ambu advanced 5.6% following better-than-expected first-quarter earnings.

Boosting sentiment, Wall Street notched fresh record highs on Monday, with focus shifting to the forthcoming big-tech earnings from the U.S. and the Federal Reserve's interest rate decision, both of which could set the tone for markets.

In Europe, while there is a broad consensus that interest rate cuts are imminent, policymakers are divided on the timing of such actions. Traders have priced in roughly a 75% chance of at least a 25 basis point cut from the European Central Bank in April.

"The question is whether the slowdown in the European economies are going to be enough to temper the rise in energy prices," said Ipek Ozkardeskaya, senior market analyst at Swissquote Bank.

"Depending on the inflation, the ECB will be able to make that decision, but again only slowing European economies won't be enough to justify an interest rate cut from the ECB, which has this single mandate of controlling inflation."

European banks added 0.8%, lifted by a 3.4% increase in BBVA after the Spanish lender's fourth-quarter net profit jumped 32%.

Diageo, however, shed 3.8% after the world's top spirits maker missed estimates for first-half year sales.

On the data front, preliminary data shows that the French economy did not grow in the fourth quarter, in line with analyst expectations. Analysts at JPMorgan expect the French economy to return to expansion in the first quarter. On the contrary, preliminary data indicates that Spain's economy expanded 0.6% in the fourth quarter.

Markets will now await the euro zone's preliminary data for fourth-quarter GDP figures, and the final estimates of the region's consumer confidence for January.

Among other movers, Hapag Lloyd dropped 9.3% after the German container shipper posted worse-than-expected fourth-quarter earnings as Red Sea attacks hit transport volumes. (Reporting by Shristi Achar A in Bengaluru; Editing by Dhanya Ann Thoppil)