European shares at over one-week highs after U.S. inflation data

European shares scaled an over one-week high on Tuesday after softer-than-expected U.S. inflation data spurred bets that the Federal Reserve would scale back the size of its interest rate hikes. The region-wide STOXX 600 was up 2.0%, hovering near a session high hit immediately after the data and appeared set for its biggest one-day percentage gain in over a month.

European shares scaled an over one-week high on Tuesday after softer-than-expected U.S. inflation data spurred bets that the Federal Reserve would scale back the size of its interest rate hikes.

The region-wide STOXX 600 was up 2.0%, hovering near a session high hit immediately after the data and appeared set for its biggest one-day percentage gain in over a month. The U.S. Labor Department's report showed

consumer prices rose 7.1% year-on-year last month - the smallest advance since December 2021. Economists polled by Reuters had expected a 7.3% increase.

The latest inflation report marks the last important data point before the Federal Reserve delivers its interest rate decision on Wednesday. The reading follows a smaller-than-expected rise in consumer prices in October. Traders' bets of a dialled down 50 basis point rate hike from the Fed on Wednesday jumped to 97% after the data from 91% before the report came out.

"Another downside inflation surprise not only validates a Fed decision to slow the pace of rate hikes, it also raises hopes that the inflation surge may actually be tamed within the next 12 months," said Seema Shah, chief global strategist at Principal Asset Management. Final data confirmed Germany's consumer prices, harmonised to compare with other European countries, were 11.3% higher year-on-year in November. Prices had risen 11.6% in October.

Meanwhile, European Union member countries are meeting in Brussels to attempt to approve a price cap proposed by the European Commission last month to shield consumers from soaring energy costs. All the STOXX 600 sectors were trading higher, with tech and real estate up 4.6% and 4.3% respectively and in the lead.

Shares of British American Tobacco slipped 2.2% after the U.S. Supreme Court on Monday cleared the way for California to enforce a voter-approved ban on flavoured tobacco products. Wacker Chemie rose 8.3% after UBS upgraded the chemical products maker's stock to "buy" from "neutral."

Lufthansa rose 4.4% after raising its 2022 earnings forecast.