European Shares Rally on Positive Earnings and U.S. Inflation Data

European shares continued to rise on Thursday thanks to positive earning updates and softer U.S. inflation data, heightening expectations of a Federal Reserve rate cut in September. The STOXX 600 index climbed 0.6%, boosted by real estate and utilities. Germany's DAX and French stocks also showed gains.

European shares extended gains on Thursday, buoyed by upbeat earning updates and softer-than-expected U.S. inflation data, which bolstered the case for a September rate cut from the U.S. Federal Reserve.

The Europe-wide STOXX 600 index ended 0.6% higher, slightly below the two-week high achieved earlier in the session. For the first time in four years, U.S. consumer prices fell in June due to lower gasoline costs and moderating rents. This disinflation trend puts the Fed closer to cutting interest rates in September.

Real estate shares and utilities were the biggest boosts to the benchmark index. The STOXX 200 small cap index outperformed the large caps with a 1.1% rise. "The data has fueled expectations that the Fed will cut rates starting in September. If the Fed cuts, it makes it easier for the ECB to do so as well," said Stuart Cole, chief economist at Equiti Capital.

European markets are anticipating a faster pace of monetary easing, which is beneficial for stocks. Money markets now price in an over 85% chance of a U.S. rate cut in September. A German report showed inflation eased to 2.5% in June, supporting further cuts from the European Central Bank. Germany's DAX index added 0.7%.

French stocks rose 0.7%, led by Vivendi's 5.5% advance after a report that its Canal+ TV unit might spin-off and list in London. Britain's Pennon jumped 9.6% after promoting Laura Flowerdew to CFO. Norway's DNB gained 5.8% on higher-than-expected earnings. Ambu's shares surged 4.7% after a positive outlook. Barry Callebaut fell nearly 12% due to higher cocoa costs.