Europe's STOXX 600 hits two-week closing high

The continent-wide STOXX 600 index ended 0.4% higher, with most local bourses also rising

Europe's STOXX 600 recorded its highest closing level in two-weeks on Tuesday, as markets remained upbeat on the prospects of the U.S. Fed possibly opting for an outsized interest rate cut later this week.

The continent-wide STOXX 600 index ended 0.4% higher, with most local bourses also rising.

Spain's benchmark climbed 1.1%, reaching its highest level in over nine years.

Retail led gains amongst major STOXX sectors with a 2.8% gain, bolstered by a 11.2% jump in Kingfisher after the B&Q and Castorama owner lifted its annual profit outlook.

Ryanair added 6.1% after CEO Michael O'Leary told Reuters that the airline has seen better momentum in bookings since last month and less need to cut prices, adding that annual profit was likely to be marginally down on last year but remained "very strong".

The travel and leisure subindex, which houses most of Europe's airlines, gained 2.2%.

Investors will be focused on the Federal Reserve's decision on Wednesday, with markets now pricing in a 61% probability that the Fed could cut rates by 50 bps, compared to a 34% probability seen a week earlier, shows the CME FedWatch Tool.

If the Fed does not initiate its easing cycle with 50 bps surely 25 bps move will be enveloped by a dovish tone and offers the Fed the flexibility and gradualism in the event inflation remains even marginally higher, according to Quincy Krosby, chief global strategist at LPL Financial.

However, top brokerages such as Morgan Stanley and Deutsche Bank continue to expect the Fed to start its policy easing cycle by a smaller 25 bps on Wednesday.

In Europe, the ZEW economic research institute said German investor morale dampened more than expected in September, with the sentiment index declining 3.6 points from 19.2 points in August.