Europe close: Spanish banks push markets higher as inflation takes centre stage

European stocks registered gains on Thursday, with a huge surge by Spanish banks making up for more subdued performances elsewhere, as the Stoxx 600 index rebounded after recent heavy losses.

The pan-European Stoxx 600 finished the session 0.6% higher at 516.50, having dropped 1.7% over the past two days. The index has been moving broadly lower over the past two weeks: prior to Thursday's session, the benchmark had fallen in seven out of the past 10 trading days since it reached a record closing high of 524.71 on 15 May.

Stocks rose by just 0.1% in Frankfurt, and by 0.6% in Paris and London, but surged by 1.7% in Madrid, helped by a strong showing from the banking sector after some hotter-than-expected inflation data.

Fading optimism around imminent interest-rate cuts has weighed on the wider European market in recent weeks, amid signs that inflation has remained stickier than expected. These fears were confirmed by data on Thursday from Spain, which showed a stronger-than-expected acceleration in price growth in May. The harmonised consumer price index rose at an annual rate of 3.8%, up from 3.4% the month before and ahead of the 3.7% reading expected by economists.

Eyes will now be turning towards Friday's CPI reading for the wider eurozone, which is expected to show that the annual inflation rate ticked up to 2.5% in May from 2.4% previously.

In other macro news, eurozone unemployment unexpectedly dipped to a record low of 6.4% in April, down marginally on March’s 6.5%, while the European Commission’s latest Economic Sentiment Index showed a marginal improvement in confidence in May, with the index rising 0.4 points to a four-month high of 96.0.

Market movers

Just two stocks on Madrid's Ibex 35 were in the red by the close, with Spanish banks the notable performers of the day on hopes that higher-for-longer interest rates – as a result of a pick-up in inflation – will continue to support the sector. Bankinter, Caixabank, Banco Santander, BBVA and Banco de Sabadell were all rising strongly.

Shares in London's Auto Trader surged 13% as the car marketplace specialist said its new financial year had got off to a strong start, after it posted in jump in annual sales and profits.

Scandinavian airline SAS slumped 8% after reporting a net loss of 2.9bn Swedish kroner ($271 million) in the quarter to April, higher than the SEK 1.52bn loss reported a year earlier and despite a 12% increase in revenue to SEK 9.9bn.

UK-listed Frasers Group and JD Sports were both in the black on positive read-across from well-received first-quarter results from Footlocker and Dick’s Sports Goods in the US.