STOXX 600 closes at a near two-week high

The continent-wide STOXX 600 index ended 0.5% higher

Europe's benchmark stock index closed at a near two-week high on Tuesday, as growing hopes of an interest rate cut from the U.S. Fed in September offset a drag from weak earnings from the likes of Swiss medtech company Tecan.

The continent-wide STOXX 600 index ended 0.5% higher. While healthcare and utilities were the top sectoral gainers, basic resources was the worst hit.

In continued evidence of moderating inflation, data showed U.S. producer prices rose less than expected in July, keeping the Federal Reserve on track to reduce rates in September.

U.S consumer prices and retail sales data, due later in the week, will also be parsed for clues on the health of the country’s economy after recession concerns affected risk assets earlier this month.

Most economies that were seemingly invincible are now slowing, which includes the world's largest, namely the U.S., China, and the euro zone. But recession risk is still low, wrote Alejandra Grindal, chief economist at Ned Davis Research.

Markets now expect a total of nearly 100 bps of U.S. rate cuts by the year's end, as per LSEG's FedWatch Tool.

A Reuters poll showed the ECB is expected to lower its deposit rate twice more this year, fewer cuts than earlier expected.

Among other data, Spain's final EU-harmonised 12-month inflation rate dropped to 2.9% in July, from 3.6% in the period through June, while German investor morale dampened more than expected in August, posting its strongest decline in two years.

Spain's benchmark stock index led regional gains with a 0.7% rise, as Germany, France, London and Italy's added between 0.2% and 0.5%.

The so-called fear gauge index also reached a near two-week low.