Europe midday: Stocks extend gains on US CPI hopes; Virgin Money surges

European shares extended gains as attention turned to US inflation data, widely tipped to show price pressures easing, spurring hopes that the Federal Reserve will ease its monetary tightening policy.

The pan-regional Stoxx 600 index was up 0.86% with major regional bourses in the green and US futures indicating a positive start.

Headline US annual inflation is expected to come in at 3.1% in June - a 12th decline in a row - after May's 4%, while the core rate is forecast to have dropped for a third straight month to 5% from 5.3%.

"Some of the decline can be taken as a reaction from the very high-base starting point, following food and energy price spikes at the same time last year. While the direction of travel is very much the right one, bringing core inflation closer to earth remains the main mission," said Hargreaves Lansdown analyst Sophie Lund-Yates.

"That’s increasingly likely to culminate in further interest rate hikes from the Federal Reserve, despite a brief cooling in policy seen recently."

In equity news, Defence group Thales rose after its started talks to buy the French supplier of airborne avionics systems Cobham Aerospace Communications for $1.1bn.

Virgin Money surged after the bank passed the Bank of England's annual capital adequacy stress test.

AXA shares gained as the company was reportedly considering offloading its property reinsurance business to cut disaster risk.

Grafton shares were up as the building materials supplier held guidance as first-half revenues rose 3.2% despite the cost-of-living crisis hitting volumes.

Norway's DNB Bank fell despite reporting a bigger-than-expected rise in quarterly earnings, driven by a robust economy and higher interest rates.

Bunzl fell after RBC Capital Markets downgraded the transport and distribution giant to ‘underperform’ from ‘sector perform’ and cut the price target to 2,550p from 2,850p as it said deflationary forces are building.

Reporting by Frank Prenesti for Sharecast.com