By Sagarika Jaisinghani
(Reuters) - Euro zone shares rose on Friday as data showed factory activity in February jumped to its highest in three years, while upbeat quarterly earnings updates from companies including Hermes boosted confidence in a broader economic recovery.
The euro zone index was up 0.3%, with gains capped by another contraction in the bloc's dominant services industry due to widespread coronavirus-induced lockdowns that have hurt the hospitality sector more than factories.
The pan-European STOXX 600 rose 0.2%, led by gains in Germany's DAX as manufacturing activity in Europe's powerhouse surged to a 36-month high.
Still, the STOXX 600 was set to end the week with modest declines, snapping a two-week gaining streak, as optimism around a better-than-expected earnings season gave way to fears that rising inflation could lead central banks to start tapering a raft of stimulus packages launched to support a recovery.
"This week's slightly adverse price action has all the hallmarks of a loss of momentum temporarily and not a structural turn," said Jeffrey Halley, senior market analyst at OANDA.
"There is not a major central bank in the world thinking about taking their foot off the monetary spigot, except perhaps China. (Markets) will remain awash in zero percent central bank money through all of 2021 (and) a lot of that will head to the equity market."
Minutes of the European Central Bank's January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro's strength but appeared relaxed over the recent rise in government bond yields.
The STOXX 600 has rebounded more than 50% since crashing to multi-year lows in March 2020, with hopes of a global economic rebound this year sparking demand for sectors such as energy, mining, banks and industrial goods.
Mining stocks rose 1% and were on course for their third week of gains in a row as copper prices scaled nine-year highs.
London's FTSE 100 lagged regional bourses due to a slump in January retail sales and as the pound jumped to its highest against the dollar in nearly three years.
In company news, Hermes surged 5.3% after the Birkin bag maker said sales recovered sharply in the fourth quarter.
The stock was among the biggest gainers on the STOXX 600 and also helped lift the European personal goods index by 0.8%.
French carmaker Renault (PA:RENA) fell 3.7% after posting a record annual loss of 8 billion euros ($9.68 billion), while food group Danone and German insurer Allianz (DE:ALVG) rose following upbeat trading forecasts.