By Sruthi Shankar
(Reuters) - European shares edged higher in thin trading on Friday after data showed Germany's manufacturing sector rebounded further in August, but gains were capped as overall recovery in euro zone business activity stalled.
The German DAX (GDAXI) gained 0.4% after the IHS Markit's flash composite Purchasing Managers' index (PMI) showed factory activity gauge rose to 53.0 from 51.0, hitting its highest level in nearly two years.
However, activity in services sector unexpectedly came to a near standstill in Europe's largest economy amid renewed travel restrictions.
Paris-listed shares (FCHI) rose 0.2% after numbers showed French business activity lost more momentum than expected in August.
The pan-European STOXX 600 index (STOXX) was up 0.4%, bouncing back after a downbeat outlook from the U.S. Federal Reserve and weak U.S. data sparked a selloff on Thursday.
"It looks like investors got out of their concerns yesterday, and are trying to push markets a bit higher," said Connor Campbell, financial analyst at SpreadEx.
"But when the FTSE, the CAC and the DAX are moving in different directions, that's sort of a sign of aimlessness among investors."
The blue-chip FTSE 100 (FTSE) slipped 0.2%, hit by a stronger pound even as data showed retail sales surged past their pre-coronavirus level in July, although economists feared the broad recovery could prove temporary. (L)
Despite Friday's small gains, the STOXX 600 was on course to end the week flat-to-lower as several European countries saw a resurgence in coronavirus cases and doubts about a U.S. recovery also weighed on investor mind.
Travel and leisure stocks (SXTP) were the biggest sectoral gainers, up 1.6%, followed by gains in technology (SX8P) and mining (SXPP) indexes.
Irish building and insulation materials firm Kingspan (I:KSP) jumped 6.6% after its chief executive said the company saw significant pent up demand post-lockdown.
Swiss drugmaker Novartis (S:NOVN) gave the biggest boost to the STOXX 600 after it won U.S. health regulator's approval to repurpose an 11-year-old blood cancer drug against multiple sclerosis.
Dutch-based payment-processing company Adyen (AS:ADYEN) extended losses as several top executives each sold 15% of their stakes in the company, cashing in 693 million euros ($822 million) in all.