By Sruthi Shankar and Shreyashi Sanyal
(Reuters) -European stocks rallied for a third day on Thursday as global sentiment improved on easing concerns about cash-strapped developer China Evergrande, while comments from Bank of England kept London shares under pressure.
The pan-European STOXX 600 index rose 0.9%, looking to end the week with solid gains after a sharp selloff on Monday. European banks rose 2.2% to lead gains.
UK's blue-chip FTSE 100 lagged regional indexes with a 0.1% fall after the Bank of England said the case for higher interest rates "appeared to have strengthened" after it nudged up inflation forecasts for the year.
"Today's BoE meeting produced little in the way of concrete changes, and it still believes that price rises will moderate next year, essentially a recognition that even if they did raise rates it wouldn't really do much at present to slow the rise in prices," said Chris Beauchamp, chief market analyst at IG.
Evergrande closed 17% higher in Hong Kong as its chairman sought to reassure investors after the company's unit said it had "resolved" a coupon payment on an onshore bond.
However, the property developer's Frankfurt-listed shares tumbled 20.1%.
"It was a bit of a September panic," said Will James, fund manager of Premier Miton European Equity Income. "It's a big issue but it's not necessarily one which will spill over beyond Evergrande and the Chinese property sector.
"We are at a point where we've had an aggressive COVID recovery, we're past peak growth and there's a question mark over the end of QE (quantitative easing). The problem with liquidity pulled out of the market brings with it the potential for more volatility."
A survey showed euro zone business activity grew at its weakest pace in five months in September as curbs to limit the Delta variant of coronavirus hit demand and supply-chain constraints pushed input costs to a more than two-decade high.
The U.S. Federal Reserve said on Wednesday it would likely begin reducing its monthly bond purchases as soon as November and signalled interest rate increases may follow more quickly than expected.
Boosting the auto sector, French car parts company Faurecia jumped 6.7% as a strong cash flow guidance outweighed lowered 2021 financial targets due to a sharp reduction in worldwide automotive production.
Rivals Valeo (PA:VLOF) gained 8.4% and Continental added 2.5% after a recent bout of weakness in the sector.
French vaccine maker Valneva climbed about 5.7% after it said it was expanding trials of a COVID-19 vaccine candidate and remained in talks with the European Commission over a potential contract.