By Amruta Khandekar and Matteo Allievi
(Reuters) -European shares extended gains on Wednesday as further evidence of easing consumer inflation in the United States boosted hopes that the Federal Reserve could end its market-punishing interest rate hikes soon.
The pan-European STOXX 600 index rose as much as 1.3% after the inflation data and was last up around 1% by 13:01 GMT, extending gains to the fourth straight day.
U.S. consumer prices advanced 3.0% in June – their smallest year-on-year increase since March 2021 – after 4% growth in May.
Core inflation, which excludes volatile food and energy prices, also grew 4.8% last month, moderating from a 5.3% increase in May.
While traders still expect the Fed to hike interest rates by 25 basis points at its meeting later in July, analysts said the U.S. central bank could be close to ending its tightening given the downward trend in inflation.
“Regardless of whether the FOMC (the US Central Bank’s interest-rate setting body) raises interest rates later this week or not, the Fed is likely coming to the end of its interest rate hiking cycle,” said Daniel Casali, Chief Investment Strategist at Evelyn Partners.
“This reduces the risk that the FOMC overtightens on interest rates and creates downward pressure to the economy and financial markets.”
UK’s Virgin Money was among top gainers on the STOXX 600, climbing 9.9%, while shares of Lloyds, Barclays and HSBC rose between 1.9% and 3% after the Bank of England said Britain’s eight largest lenders showed no capital inadequacies.
Gains in the lenders pushed UK’s FTSE 100 index up 1.6% while the European banks index rose 1.3%.
Miners were the biggest sectoral gainers, up 3.2% as metal prices climbed on a weaker dollar. [MET/L]
Boosting the technology sub-index, semiconductor firms, including Aixtron, ASM International and Infineon, rose between 4% and 6% after Jefferies raised price targets on the stocks.
At the bottom of the STOXX 600 index, Air France-KLM shares fell 4.8% after Deutsche Bank cut the stock to “hold” from “buy”.
Thales rose 3.7% after the French defence group said it had initiated talks to buy supplier Cobham Aerospace Communications for $1.1 billion.
On the euro zone economic data front, Spanish national consumer prices rose 1.9% in the 12 months through June, down from a 3.2% rise in the period through May, a final reading showed.
(Reporting by Matteo Allievi in Gdansk and Amruta Khandekar in Bangalore; Editing by Sohini Goswami)
