By Ankika Biswas, Johann M Cherian and Ozan Ergenay
(Reuters) -European shares staged a recovery after a knee-jerk reaction to a high U.S. inflation reading on Wednesday, with investors turning their focus to the European Central Bank's monetary policy decision on Thursday.
The pan-continent STOXX 600 closed 0.1% higher, after hitting a near one-month low intraday, with banks and the energy sector leading the charge, up 0.9% and 0.6%, respectively.
Germany and Italy's benchmark indexes turned positive after dropping into the negative territory, while those of France and Spain came off their day's lows.
Financial markets are now betting that the most influential central bank, the Federal Reserve, will delay cutting interest rates until September after data showed a higher-than-expected rise in U.S. consumer prices in March.
"It's just the initial shock and then kind of optimism coming back in again, wondering, does it make a huge difference?," said Morningstar's European market strategist Michael Field, who thought the data likely cemented bets of the ECB cutting rates before the Fed.
Focus now shifts to the ECB's policy meeting on Thursday, expected to hold rates steady. With both hawks and doves coalescing around a June rate cut, the meeting will likely centre around the bank's growing confidence that conditions will be in place to lower rates in June.
"For the ECB, it's not just weighing up whether inflation's resurging, they're also trying to balance not shifting us into recession and not leaving rates too high for too long," Field added.
Technology stocks also rebounded from the red, after the sector led gains in early trade following upbeat quarterly revenue from Taiwan chipmaker TSMC.
However, rate-sensitive real estate sector shed 1.5% after the data, with Swedish stocks Balder and Sagax falling around 4% each.
Utilities also lost 1.3%. Italy's Italgas lost 2.8% on a report of the company's preliminary 4-5 billion euros offer for main domestic rival 2i Rete Gas, while Enel (BIT:ENEI) lost 2.2% after an explosion at a hydroelectric power plant in northern Italy on Tuesday.
Barry Callebaut jumped 11% after the chocolate maker reported upbeat half-yearly revenue, easing fears that jumping cocoa prices and other inflationary pressures might hit demand.
Tesco (OTC:TSCDY) climbed 3.3% after Britain's biggest retailer forecast a further rise in profit.
Europe's largest copper producer Aurubis advanced 4.9% after Metzler Capital Markets upgraded its rating to "buy" from "hold".
French payments services firm Edenred (EPA:EDEN) lost 4.2% after Jefferies initiated coverage with "underperform".