(Reuters) -Goldman Sachs raised its 12-month price forecast for Europe's STOXX 600 index on Friday, citing the potential benefits of a peace deal between Russia and Ukraine for the region's equities.

The brokerage raised its forecast to 580 from 540.

"For European equities, we see a number of potential benefits - lower risk premium, lower inflation, improved consumer confidence, stronger economic growth," said Goldman Sachs strategists led by Sharon Bell.

U.S. President Donald Trump held separate discussions on Wednesday with Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy, instructing U.S. officials to begin talks aimed at ending the nearly three-year-long conflict.

"The potential for peace in Ukraine is clearly a catalyst for reduced risk," Bell said.

European stocks are trading at a discount to their U.S. counterparts, with the STOXX 600's price-to-earnings ratio at 17.52, compared with the S&P 500's 27.38.

Since the Russia-Ukraine war, Europe has faced challenges due to its energy dependence on Russia, with sanctions from the West reducing supply and leading to price hikes across the region.

European equities have seen significant outflows since Russia's full-scale invasion of Ukraine in February 2022, Goldman Sachs' Bell said.

Goldman Sachs estimates that euro zone's economic growth could potentially increase by 0.2% in a limited ceasefire scenario.

The brokerage also raised its 12-month forecast for UK's benchmark FTSE 100 index to 9,000 from 8,600.