European shares climb as investors see 'fog of inflation clearing slightly'

Last week's report showed US consumer prices rising at a slower pace and the rate-sensitive technology index in Europe climbed by 1.7%, as eurozone bond yields slipped in line with US yields. 

European shares closed higher, boosted by gains in technology and commodity stocks after softer-than-expected US inflation data bolstered hopes of less aggressive US interest rate hikes in the coming months.

The continent-wide Stoxx-600 index logged its fourth straight session of gains after softer-than-expected US producer prices data provided further evidence that inflation was starting to subside.

Last week's report showed US consumer prices rising at a slower pace and the rate-sensitive technology index in Europe climbed by 1.7%, as eurozone bond yields slipped in line with US yields. 

"Investors are sort of seeing the fog of inflation clearing slightly, particularly in the United States," said Danni Hewson, financial analyst at AJ Bell.

Eurozone inflation data for October is due on Thursday.

Meanwhile, European Central Bank policymaker Francois Villeroy de Galhau said the bank expects to raise interest rates above 2%, but beyond that level rate hikes may be in a more flexible and less rapid manner.

The Stoxx-600 still hovered near 11-week highs, but is still down 11.3% for the year amid worries about a harsh recession in the eurozone. Latest data showed a flash estimate for eurozone GDP grew in line with expectations in the July-September period. 

Separately, German investor sentiment rose again in November on hopes that inflation rates will fall soon. "The ECB is going to have to work harder to cool inflation," said Mr Hewson.

The expectation is that inflation will stay higher for longer in the eurozone and that energy prices are going to keep taking a bite out of consumer spend in the eurozone, which is a reason why European equities haven't been looking quite so perky." 

Investors also awaited the UK budget on Thursday, with expectations of tax increases and spending cuts, aimed at closing a hole in Britain's finances. Weighing the most on the Stoxx-600 index was a 7.5% slide in Vodafone shares after the company cut its full-year free cash flow forecast. 

In Ireland, rate-sensitive stocks, including the banks, rose. Bank of Ireland shares ended 3.5% higher, AIB rose 2.5%, and Permanent TSB gained 0.6% in the session. Dalata, owner of Ireland's largest hotel chains, ended the session 2.5% higher.  

• Reuters. Additional reporting Irish Examiner