Europe close: Stocks end off best levels of the day

European stocks finished higher, but off their best levels of the day, as investors welcomed the Federal Reserve’s first rate hike in nearly a decade and reassurance that the tightening path will be gradual.

The DJ Stoxx Europe 600 index was up 1.24% to hit 364.90, while Germany’s DAX jumped 2.57% and France’s CAC 40 another 1.14%.

On Wednesday, the US central bank lifted the range for its benchmark interest rate to between 0.25% and 0.5% from 0% to 0.25%, as chairwoman Janet Yellen insisted the increase was part of a “gradual” process and reflective of an economy that is on a path of “sustainable improvement”.

European government bonds also gained ground on the news, with the yield on the 10-year German Bund down three basis points, while yields on peripheral European debt such as Spain and Italy’s 10-year government bonds, also fell. Yields move inversely to prices.

In currency markets, the dollar gained ground against its major rivals after the rate hike, trading up 0.9% versus the pound and 1.0% against the euro and 0.5% higher against the yen.

“If the Fed raises rates by 1% next year – in line with the path implied by the FOMC’s forecasts – the dollar will be significantly stronger by December 2016. In practice, they’ll tighten less, in part because of further dollar strength,” said Societe Generale strategist Kit Juckes.

To take note of, short-term interest rate markets seemed to be taking the rate hike in stride and functioning smoothly.

LIBOR fixed at 0.3614% on Thursday morning in New York, up from 0.1315% a week earlier.

Despite the good news, some market watchers cautioned that Janet Yellen&Co. had not yet bought into the Fed´s so-called 'dot-plot' graphs.

Whereas rate-setters in Washington DC said they anticipated - on a median basis - four 25 basis point interest rate increases for next year, financial markets were only pricing in two hikes.

"In order to align market expectations with its own it will have to be much more persuasive in its communication that it is serious about this hiking cycle. This in turn will lead to a tightening of financial conditions which the Fed will have to swallow if it is to hike," said Alberto Gallo, head of macro strategy at RBS.

With investors firmly focused on the Fed’s announcement, softer-than-expected German data passed by unnoticed.

The IFO Institute’s business climate index slipped to 108.7 from 109 the previous month, falling short of analysts’ expectations for no change.

In corporate news, pharmaceuticals giant AstraZeneca was on the front foot after announcing the acquisition of a majority stake in US and Netherlands-based Acerta Pharma in a deal valued at $4bn (£2.7bn).

Standard Chartered was also in the black after people familiar with the matter told Reuters top investor Temasek would grant the lender time to work on its turnaround before taking a decision on its $4bn (£2.6bn) stake in the UK bank as part of a portfolio reshuffle.

Shares in French oil company Total slipped on the lower oil price and after it named chief executive Patrick Pouyanne as chairman of the board.