Europe midday: Shares rally despite rise in May EZ inflation

European shares rallied on Friday as investors digested higher-than-expected flash eurozone inflation data and awaited a key CPI measure from the US.

The regional Stoxx 600 index was up 0.14% to 517.3. Major regional bourses were lower with the exception of Britain's FTSE 100, which gained 0.44% to 8,267.71.

Eurozone inflation rose in May, according to official data published on Friday, as prices stubbornly refused to shift and indicating a tougher path ahead for the European Central Bank's monetary policy, although the rate cut pencilled in for next month was likely to go ahead.

The annual inflation rate across the eurozone is expected to be 2.6% in May, statistics body Eurostat said in a flash estimate, up from 2.4% in April and March, driven by rising prices in the services sector.

Economists had expected a smaller rise in inflation, to 2.5%, as investors expect an interest rate cut by the ECB next week.

Underlying inflation, which excludes volatile items such as food, energy, alcohol and tobacco came in at 2.9% from 2.7% in April.

Services inflation rose to 4.1% in May, up from 3.7% in April, while food, alcohol & tobacco inflation slowed to 2.6% from 2.8% in April.

"With both headline and core inflation on the rise, the justification for three rate cuts this year will likely come under pressure as we await (ECB chief Christine) Lagarde’s assessment on Thursday," said Scope Markets analyst Joshua Mahony.

In equity news, Telecom Italia shares fell 4% as US investment firm KKR won unconditional EU antitrust approval on Thursday for its up to €22bn acquisition of TIM's fixed-line network.

Shares in JD Sports Fashion slumped as the company held guidance amid "volatile" trading conditions as annual profits fell but revealed that first-quarter like-for-like sales were down 0.7%, reflecting the woes of its major supplier Nike.

Flutter Entertainment fell as its finance chief left with immediate effect as the company moved its listing to the US.

Reporting by Frank Prenesti for Sharecast.com