By Sruthi Shankar
(Reuters) - European stocks rose for a third session on Thursday after the European Central Bank pledged to keep interest rates at record lows for even longer, while strong corporate earnings underpinned optimism about an economic recovery.
Euro zone shares rose as much as 1.3% in afternoon trading after the central bank said it would not hike rates until it sees inflation reach its 2% target "well ahead of the end of its projection horizon and durably". The index was last trading up 0.9%.
The rate-sensitive euro zone banking index inched up 0.2%, although it was trading at levels prior to the policy decision with government bond yields on the decline. [GVD/EUR]
The region-wide STOXX 600 rose 0.6%, recovering fully from its worst selloff in 2021 earlier this week.
"This news should be a short-term positive for European stocks and the overall recovery trade, providing additional support especially amidst rising nerves over the Delta variant," said Xian Chan, chief investment officer, wealth management at HSBC.
ECB President Christine Lagarde warned that a fresh wave of the pandemic could pose a risk to the euro zone's economic recovery.
Travel and leisure stocks topped sectoral gains again, rising 2.7%. The index had hit a five-month low on Monday on fears over the growing spread of Delta variant.
In earnings-driven moves, Sweden-based private equity firm EQT (NYSE:EQT) jumped 13.2% to the top of STOXX 600 after reporting upbeat first-half earnings, while Swiss engineering company ABB hit its highest since November 2007 after it doubled its full-year sales outlook.
Of the quarter of the STOXX 600 companies that have reported so far, 61% have topped analysts' profit expectations, according to Refinitiv IBES data. Typically, 51% exceed earnings forecasts.
The benchmark STOXX 600 hit all-time highs last week on optimism about a strong recovery in economic growth and earnings. However, markets have turned volatile recently on concerns about higher inflation and a resurgence in virus cases.
Weighing on UK's blue-chip FTSE 100, consumer goods giant Unilever (NYSE:UL) Plc slid 5.9% after it cut its full-year operating margin forecast due to surging commodity costs.
France's Publicis climbed 1.2% after forecasting that its financials would make a full return to pre-pandemic levels this year.
Italy's Monte dei Paschi jumped 5.3% after the lender and its former top investor reached a preliminary accord to settle their legal disputes.
Graphic: Euro area PE ratio and inflation expectations: https://fingfx.thomsonreuters.com/gfx/mkt/klvykegeyvg/Pasted%20image%201626942246681.png