European shares rise on soft U.S. inflation data

By Shristi Achar A and Shubham Batra

(Reuters) -European shares extended gains on Thursday as more upbeat earning updates and softer-than-expected U.S. inflation data rolled in, strengthening the case for a September rate cut from the U.S. Federal Reserve.

The Europe-wide STOXX 600 index ended 0.6% higher, slightly off the two-week high it notched earlier in the session.

U.S. consumer prices fell for the first time in four years in June amid lower gasoline costs and moderating rents, firmly putting disinflation back on track and drawing the Fed another step closer to cutting interest rates in September.

Real estate shares and utilities were the biggest boost to the benchmark index, while the STOXX 200 small cap index outperformed the large caps with a 1.1% rise.

"(The data) has boosted expectations that the Fed will cut rates, starting in September. And 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 thinking along these lines, and now anticipating a brisker pace of monetary easing in Europe than was previously expected. And that is good for stocks."

Money markets have now priced in an over 85% chance of a U.S. rate cut in September.

In the region, a report showed German inflation eased to 2.5% in June, confirming preliminary data, opening the door for further cuts from the European Central Bank. The ECB will cut its deposit rate twice more this year, in September and December, according to a Reuters poll.

Germany's DAX index added 0.7%.

French stocks rose 0.7%, led by Vivendi's 5.5% advance after a report that the media group is exploring a spin-off and potential London listing for its Canal+ TV unit.

British water company Pennon jumped 9.6% after it named company insider Laura Flowerdew as its new CFO.

DNB, Norway's largest bank, gained 5.8% after it reported higher-than-expected second-quarter earnings and said its results were supported by a stable economy.

Ambu's shares jumped 4.7% to their highest since February 2022 after the Danish medical equipment maker hiked its full-year outlook and its preliminary third-quarter numbers beat consensus.

Barry Callebaut tumbled nearly 12% to the bottom of the STOXX 600 after the Swiss chocolate maker said quarterly sales volumes declined and cocoa prices had boosted its costs.

(Reporting by Shubham Batra and Shristi Achar A in Bengaluru; Editing by Savio D'Souza and Aurora Ellis)