European shares surge after ECB cuts interest rates

The pan-European STOXX 600 index was 0.8% higher at 511.98 points, reaching one-week highs, with all regional bourses closing the session with healthy gains

European shares jumped on Thursday after the ECB cut interest rates again as inflation stays within close to its 2% target and the economy is avoiding a recession.

The pan-European STOXX 600 index was 0.8% higher at 511.98 points, reaching one-week highs, with all regional bourses closing the session with healthy gains.

The European Central Bank reduced its deposit rate by 25 bps to 3.50%, following up on a similar reduction in June, which left most of Europe's sectors in the red except utilities, which edged down 0.1%.

Investors' focus has now shifted to what comes next and how ECB decisions will be shaped by the U.S. Fed's expected start to its own rate-cutting cycle next week.

The risk of the economy overheating because of further rate cuts seems 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, according to Michael Field, European Market Strategist at Morningstar.

Money markets currently see 54% probability of a 25 basis points rate cut by the European Central Bank in December.

Among sectors, mining led the gains, adding 2.4% after prices of base metals increased, buoyed by hopes of an interest rate cut in the U.S. next week.

Technology stocks chimed with a rally in their Asian peers, and climbed 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 company to soar 1.4%.

Meanwhile, Spain's consumer price figures showed the 12-month EU-harmonised inflation declined to 2.4% in August, causing the benchmark IBEX 35 index to add more than 1%.

Swedish inflation declined 0.5% in August, just below forecast.