European shares end stronger on firmer Fed rate-cut bets

By Johann M Cherian

(Reuters) -European shares closed higher on Thursday as heightened expectations for a U.S. Federal Reserve interest rate cut lifted markets, while easing pressures on bond market also supported the main index.

The pan-European STOXX 600 jumped 0.66% to 550.39 points at the close, with gains led by the media and telecommunication indexes, up about 1.9% each.

Meanwhile, softer U.S. private payrolls data bolstered Fed rate cut bets as it showed private employment increased less than expected in August. Several Fed officials who spoke on Wednesday also pointed to rate cuts ahead.

Attention now turns to Friday's highly anticipated nonfarm payrolls data that could further consolidate market bets for a September rate cut.

European markets also calmed after risks tied to debt-driven fiscal spending in developed economies had triggered an equity market selloff earlier this week.

"With the yields having calmed down today, perhaps again, there's a sense that this bit of an early autumn, late summer panic seems to have subsided just a little bit," said Chris Beauchamp, chief market analyst at IG Group.

Euro zone bond yields cooled, with German 30-year bond yield down to 3.3439%. Its French counterpart eased to 4.402% after hitting its highest since June 2009 on worries that its government could collapse again.

Investor sentiment will be further tested as French Prime Minister François Bayrou faces a vote of confidence next week amid concerns that his minority government may topple after it pushed for a budget squeeze in 2026.

"And only if one of those worst-case outcomes in terms of political turmoils and new presidential elections happens, that will be a catalyst for more (volatility)," said Bas van Geffen, quantitative analyst at Rabobank.

"But barring that, the market is preparing for a new PM and potentially a sort of watered-down budget consolidation."

France's CAC 40 index ended 0.3% lower. September is also historically a tough period for markets.

China-exposed luxury stocks were a drag, with fashion giants Burberry, Christian Dior and LVMH falling between 2.8% and 4.2%, as Chinese bourses tumbled overnight on reports that Beijing wanted to cool a red-hot stocks rally.

Declines weighed on the European luxury index, losing 1.24% to lead the sectoral losses.

Travel and leisure also weighed on the main index, falling 0.8%, with Ryanair losing 3.2% and Easyjet dropping 4.2%.

The losses were inspired by Jet2's 12.5% slide after the low-cost airline and travel firm trimmed its profit outlook due to a trend of travellers booking tickets closer to departure dates to avoid unforeseen expenses.

Sanofi slid 8.3% to the bottom of the STOXX index after the late-stage trial data for French drugmaker's experimental inflammatory disease drug amlitelimab fell short of market expectations.

Volvo Cars lost 3.3% after the car maker's August sales fell 9% from a year earlier, while private equity manager CVC Capital lost 6.3% after reporting first-half results.

D'Ieteren tumbled 9.8% - the biggest individual loser on the STOXX 600 index on Thursday - after the Volkswagen distributor reported a 22.7% drop in first-half profit.

(Reporting by Tristan Veyet in Gdansk and Johann M Cherian in Bengaluru; Editing by Nivedita Bhattacharjee, Saumyadeb Chakrabarty and Richard Chang)