European shares rise on financials, energy boost amid festive cheer

European shares rose for a second straight session on Thursday, boosted by financial and energy stocks, as investors cheered improving consumer sentiment in the United States after inflation expectations eased.

The region-wide STOXX 600 index was up 0.4% at a one-week high, taking cues from an upbeat session on Wall Street overnight.

The U.S. main stock indexes logged their biggest daily gains so far this month on Wednesday, helped by a reading which showed domestic consumer confidence rose to an eight-month high in December as inflation retreated and the labour market remained strong.

European shares also posted strong gains in the previous session, as improving consumer sentiment in the eurozone eased some fears about an economic downturn which had been heightened by hawkish messages by major central banks last week.

"What we're seeing is a recovery in risk appetite after a fairly negative set of central bank meetings for equities," said Adam Hoyes, markets economist at Capital Economics.

"There's probably a little bit of spillover from the consumer confidence data from the U.S. and it looked to be sort of broadly similar in the eurozone as well."

Markets are seeing an uplift as the festive mood kicks in ahead of the end of an year which has seen equities take a massive hit due to fears of a steep economic recession from aggressive monetary policy tightening by central banks.

Traders and analysts have also pointed to thin trading volumes ahead of the holidays influencing market moves.

The STOXX 600 has fallen about 11% so far in 2022, but it has still outperformed the benchmark U.S. S&P 500 index, which has declined 18.6% and is on track for its worst yearly performance since 2008.

Energy stocks have been the biggest boost to the STOXX 600 index this year, up 27% while rate-sensitive real estate stocks, down 40% on the year, have seen the worst losses so far.

Among sectoral indexes on Thursday, energy stocks jumped 1.2% to spearhead gains, as they tracked oil prices higher. [O/R].

Banks rose 0.7%, hitting their highest since March, boosted by shares of Denmark's Jyske Bank and Danske Bank after local peer Sydbank upgraded its full-year net income outlook.

Euro zone bond yields struggled for direction on Thursday as investors took stock of a surge in borrowing costs in the wake of last week's European Central Bank (ECB) meeting.

London's blue-chip FTSE 100 rose 0.5% despite data showing Britain's economy contracted more than expected in the third quarter.

German-based Rheinmetall jumped 3.4% after the defense firm said it was supplying Ukraine with new logistic trucks.