European Shares Surge as ECB Cuts Interest Rates Amid Inflation Concerns

European shares rose on Thursday after the European Central Bank cut interest rates and inflation remained near its 2% target. The pan-European STOXX 600 index increased by 0.8%, with gains in various sectors except utilities. Investors now await further ECB decisions influenced by the U.S. Federal Reserve's planned rate cuts.

European shares jumped on Thursday after the European Central Bank (ECB) cut interest rates again as inflation hovers within striking distance of its 2% target and the domestic economy is skirting a recession. The pan-European STOXX 600 index was up 0.8% at 511.98 points, hitting one-week highs, with all regional bourses ending the session with healthy gains. The ECB lowered its deposit rate by 25 basis points to 3.50% in a widely telegraphed move, following up on a similar cut in June, which left most of Europe's sectors in the black except utilities, which edged down 0.1%.

Investors' attention has now shifted to what comes next and how ECB decisions will be shaped by the U.S. Federal Reserve's expected start to its own rate-cutting cycle next week. "The risk of the economy overheating because of further rate cuts appears low, making economists' expectations of one more rate cut before the end of the year highly probable. The ECB's pattern of cut, monitor and repeat is likely to continue," said Michael Field, European Market Strategist at Morningstar.

Money markets currently see 54% chance of a 25 bps rate cut by the ECB in December. Among sectors, mining led the gains, rising 2.4% after prices of base metals rose, buoyed by hopes of an interest rate reduction in the U.S. next week.

Technology stocks chimed with a rally in their Asian peers, and jumped 2.0% to provide the biggest boost to the European benchmark index. A Semafor report said the U.S. government is considering letting Nvidia export advanced chips to Saudi Arabia, causing the AI-darling to surge 1.4%.

Meanwhile, Spain's consumer price figures showed the 12-month EU-harmonised inflation eased to 2.4% in August, causing the benchmark IBEX 35 index to gain more than 1%. Swedish inflation eased 0.5% in August, just below forecast. Shares of Roche fell 2.2% after the Swiss drugmaker said promising results of an early-stage trial of its experimental weight-loss pill were based on just six patients.

Across the Atlantic, the producer price index (PPI) for final demand rose 0.2% in August, compared with estimates of 0.1% growth. The core number, which strips out volatile food and energy prices, rose 0.3%, more than the 0.2% forecast.

(With inputs from agencies.)