Europe's STOXX 600 logs best month since July on China, smaller rate hikes cheer

© Reuters. FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, November 22, 2022. REUTERS/Staff/File Photo

By Susan Mathew and Devik Jain

(Reuters) -The STOXX 600 index closed higher on Wednesday and registered its second straight month of gains on hopes of easing COVID curbs in China and after cooler euro zone inflation data bolstered case for smaller rate hikes by the European Central Bank.

The pan-European index rose 0.6% to end November with a 6.8% gain, its best monthly performance since July.

China-exposed luxury stocks (SXQP) were among the biggest boosts to the STOXX 600 on Wednesday, followed by auto (SXAP) and commodity (SXEP), stocks.

The giant Chinese cities of Guangzhou and Chongqing announced an easing of COVID curbs on Wednesday after a string of protests against the world's toughest coronavirus restrictions. But with record numbers of cases nationwide, there seems little prospect of a major U-turn in "zero-COVID" policy.

"Optimism about China reopening is really starting to filter through," said Giles Coghlan, chief market analyst at HYCM.

Meanwhile, data showed consumer prices in the euro zone grew 10% in November, well below expectations for 10.4% and after a 10.6% increase in October, prompting traders to raise their bets to 57% for a 50 basis point rate hike by the ECB in December. [0#ECBWATCH]

The report came amid mixed signals from policymakers recently about the pace and path of future increase in borrowing costs.

"Euro zone inflation is following that of the U.S. in making some tentative declines from peak levels. It would be foolish to be complacent about the risks of inflation taking a new leg higher," said David Goebel, associate director of investment strategy, Evelyn Partners.

"Nonetheless, these latest readings will give consumers and investors some hope that the worst of this inflationary episode could be in the rear-view mirror."

The benchmark STOXX 600 has climbed nearly 15% from its September closing lows on hopes that the Federal Reserve will shift to smaller interest rate hike amid signs of cooling U.S. economy.

With the energy crisis seen persisting in Europe, Citigroup (NYSE:C) expects the euro zone and the UK to slip into recession by the end of this year and forecast contractions of 0.4% and 1.5%, respectively, for the coming year.

Among single stocks, argenx SE jumped 7.1% after the Dutch biopharmaceutical company announced a deal to acquire a U.S. FDA Priority Review Voucher (PRV) for $102 million.

United Internet added 5.4% after UBS upgraded the German telecommunications provider's stock to "buy".

Avanza Bank Holding slid 5.2% after the financial company flagged smaller boost from recent rate hike by the Swedish central bank.

Telecom Italia (BIT:TLIT) (TIM) shed 5.2% after Italian cabinet undersecretary Alessio Butti said that the state had no plans to launch a full takeover bid for the former phone monopoly.