European shares on track for fourth straight weekly gain as yields fall

By Shashwat Chauhan and Pranav Kashyap

(Reuters) - European shares ended on a positive note on Friday, benefiting from a broad-based rally which was fuelled by declining government bond yields and encouraging economic data from China, with the STOXX 600 logging its fourth straight weekly rise.

The benchmark index, which rose by 0.7%, recorded a more than 2% gain over the week, achieving its fourth consecutive week of advances, its longest winning streak since Aug. 26 last year.

Most STOXX sub-sectors were trading higher, with rate-sensitive sectors, like construction and industrials boosting the index, rising 1.6% and 1.5% respectively.

Meanwhile, data showed euro zone consumer inflation for December in line with expectations.

The European Central Bank's Frank Elderson said it is not yet done lowering interest rates, but the timing and size of any future policy easing is not yet certain, Dutch newspaper Het Financieele Dagblad reported.

Euro zone benchmark German bond yields were on track for their first weekly drop since early December 2024. [GVD/EUR]

Investor confidence received an additional lift from China's economic performance, which while aligned with the government's target of 5% growth for the previous year, was unbalanced.

This also boosted the basic resources sector, which rose by 2% [MET/L]

UK's FTSE 100 outperformed its continental peers, gaining 1.3% to close at an all-time high.

British retail sales fell unexpectedly in December, adding to a run of downbeat economic indicators that are likely to further boost expectations for a Bank of England interest rate cut next month.

The only sector in the red was healthcare, which fell 0.8%. Barclays said it was cautious on European pharmaceuticals and life sciences, predicting a challenging first-half of the year.

Throughout the week, European equities thrived as global markets responded favourably to a slowdown in U.S. core inflation. This left the door open for potential interest rate cuts by the Federal Reserve, further enhancing market optimism.

Positive earnings from Cartier-owner Richemont on Thursday spurred a rally amongst luxury heavyweights such as LVMH, Kering and Swatch, giving a leg up to the broader index.

Looking ahead to next week, attention will shift to the inauguration of Donald Trump as President of the United States. Investors will be keenly watching for any new policy announcements, including the possibility of trade tariffs, which could have significant implications for Europe.

Meanwhile, Axel Rudolph, senior technical analyst at IG said asset allocation away from over-valued U.S. mega stocks into lower P/E ratio, European shares amid a weak euro and sterling have propelled the region's indexes to record highs.

Saab lost 5.3% after the Swedish defence equipment maker reported fourth quarter results.

Avolta jumped 8.4% after the Swiss duty-free retailer said it plans to buy back shares for the equivalent of 200 million Swiss francs ($220 million) to cancel in the future.

($1 = 0.9109 Swiss francs)

(Reporting by Shashwat Chauhan and Pranav Kashyap in Bengaluru; Editing by Savio D'Souza and Mrigank Dhaniwala)