(Bloomberg) -- European stocks edged higher as the latest US economic data somewhat assuaged concerns about rates staying higher for longer.

The Stoxx Europe 600 index edged 0.3% higher at the close in London, after US data showed a slowdown in services sector that overshadowed a report underscoring a still tight labor market. Services price data may temper concerns that the Federal Reserve’s progress on inflation is at risk of stalling. Banks outperformed, while energy stocks rose as OPEC+ chose to stick with oil supply cuts for the first half of the year.

After a powerful first-quarter rally in stocks, investors are recalibrating their outlook on interest rates. Figures out Wednesday showed that euro-area inflation slowed more than expected, increasing prospects for easing by the European Central Bank in June.

ECB Governing Council member Robert Holzmann told Reuters a June rate cut is possible, while excluding a move in April. In the US, two Federal Reserve officials who vote on monetary policy decisions this year said they still expect the US central bank to cut rates three times in 2024. 

Meanwhile, some strategists are optimistic about European stocks’ potential to catch up with the stellar gains on Wall Street. Barclays Plc strategist Emmanuel Cau upgraded his rating on European stocks to tactical overweight, citing upcoming rate cuts and improving global growth. 

For Tatjana Puhan, chief investment officer at Copernicus Wealth Management, a turnaround in earnings prospects is a positive. “With the business environment improving gradually, this may also help investors to regain confidence to shift weight out of the highly valued US market into European equities.”

Among single stocks, Renishaw Plc fell after Siemens AG confirmed that it does not intend to make an offer, responding to “recent press speculation.” OVS SpA rose after it agreed to buy Goldenpoint SpA in stages, while FinecoBank Banca Fineco SpA was the best performer in the banking sector after JPMorgan Chase & Co. raised its recommendation on the stock to overweight.

For more on equity markets:

  • Tailwinds Start to Play Out for the UK Market: Taking Stock
  • M&A Watch Europe: Genmab, Siemens, Renishaw, Wincanton
  • Deutsche Bank Says Glencore May Consider US Listing: ECM Watch
  • US Stock Futures Unchanged; Cal-Maine, Dave & Buster’s Gain
  • House Price Dip: The London Rush

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--With assistance from Michael Msika.

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