(Bloomberg) -- European stocks closed on Thursday hovering around their highest level since January 2022 after a strong year-end rally fueled by growing optimism that central banks will cut interest rates next year.

The Stoxx 600 Index closed 0.1% lower, with trading volumes on the European benchmark around two thirds of the three-month average. Health care stocks and the food, beverage and tobacco sector led gains, while banks and energy companies lagged.

The benchmark is set to end 2023 up about 13% after a two-month rally that’s been fueled by slowing inflation, economies avoiding major contractions and hopes for pivots by central banks.

Haig Bathgate, head of investments at Atomos, said expectations of peaking interest rates and economic data holding up are lifting sentiment in the US. In Europe, the backdrop is more mixed but it should generally follow the same direction.

In the US, initial applications for jobless claims rose to a level consistent with a resilient labor market, with the four-week moving average little changed.

“The year-end stock rally hinges on the prospect of a Fed pivot,” said Morgane Delledonne, head of investment strategy for Europe at Global X ETFs.

For more on equity markets:

• ADVISORY: ECM Watch Europe Will Resume on Jan. 8
• US Stocks Trade Steady After Labor Data as Nasdaq 100 Gains

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--With assistance from Farah Elbahrawy.

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