By Joao Manuel Vicente Mauricio and Ankika Biswas
(Reuters) -Tech stocks spearheaded a rebound in European shares on Thursday, after a two-day slump fuelled by worries over potential U.S. tariffs and France's economic and political challenges, with investors now closely watching inflation reports for clues on the future trajectory of interest rate cuts.
The pan-European STOXX 600 index was up 0.4% to 507.23 points. Trading volumes were expected to be light with the U.S. market shut for Thanksgiving holiday.
The tech sector climbed nearly 1%, logging its best day in one week, as chip stocks gained after Bloomberg reported the U.S. administration's China chip curbs could be less severe than expected.
Shares of ASM International (AS:ASMI), BE Semiconductor and ASML (AS:ASML) gained between 2% and 2.5%.
France's blue-chip index also regained some lost momentum, gaining 0.5%, after sliding to August lows in the previous session.
Defence stocks led sectoral gains, boosted by a 4.1% jump in Airbus.
Sentiment eased after European Central Bank President Christine Lagarde told the Financial Times a global trade war would be "in nobody's interest".
French government bonds held steady after Wednesday's sell-off drove the risk premium over German bonds to its highest point since the 2012 debt crisis.
French Prime Minister Michel Barnier's government faces an uncertain future, as his struggle in securing approval for the 2025 budget in a polarized parliament make it increasingly likely that his fragile coalition will collapse.
"We don't think (Marine) Le Pen (leader of far-right National Rally party) will follow up on her threats to topple the government in the near term, but it does remind markets of the precarious situation the country is in," said Michiel Tukker, senior European rates strategist at ING.
The banking sector also provided some support to the STOXX 600. It gained 0.9%.
Inflation in Germany, Europe's largest economy, remained flat in November at 2.4%, while rising in several German states. Spain's November headline inflation met expectations.
Inflation figures for the euro zone, France and Italy are set to be released on Friday.
These reports follow stubbornly strong U.S. inflation data, which raised concerns that the Federal Reserve might take a cautious approach to policy easing.
Shares of Direct Line (LON:DLGD) Insurance soared 41.4% after the insurer rejected a 3.28-billion-pound takeover offer from bigger rival Aviva (LON:AV), whose shares were down 2.3%.
On the other hand, Grifols (BME:GRLS) fell 11.8%, extending losses to the second session, after Canadian fund Brookfield dropped its takeover plans.