By Pranav Kashyap and Lisa Pauline Mattackal
(Reuters) -European shares rose to an all-time high on Friday, closing a turbulent month on a bright note after a significant drop in euro zone inflation cemented market expectations for an interest rate cut in September.
The pan-European STOXX 600 index edged up 0.1%, closing above 525 points for the first time after touching an intraday record high of 526.66 points. The index gained 1.2% in August, rising for a second consecutive month.
Inflation in the 20-country euro zone fell to 2.2% in August, its slowest pace since July 2021, according to Eurostat's flash reading and near the European Central Bank's 2% target.
The data firmed existing expectations for the ECB to cut rates at its September meeting. Slowing inflation data in the United States also lifted sentiment as markets looked for the Federal Reserve to also ease policy next month.
"Markets are standing the middle ground, pricing rate cuts but not too many, and fast but not too urgent," said Anders Svendsen, chief analyst at Nordea Markets, referring to both the Fed and the ECB.
Better economic data and hopes for interest rate cuts in both Europe and the United States have helped European stocks bounce back from a massive selloff early in August, as a sharp decline in technology shares, the unwinding of the yen carry trade and worries about a U.S. recession saw global equities tumble.
That selloff saw the STOXX 600 plunge to a six-month low on Aug. 5, but the index has since gained nearly 10%. The benchmark notched its fourth straight week of gains, its best weekly winning streak since late March.
ECB board member Isabel Schnabel kept the door open to further rate cuts, while fellow policymaker Francois Villeroy de Galhau said the central bank would be "wise" to cut rates again in September.
All major regional European bourses rose in August, with Spain's main stock index the best monthly performer with a 3% monthly rise.
The rate-sensitive real-estate sector was the day's best performer, rising 1.4%, followed by a 0.8% gain in the index tracking bank stocks.
The French benchmark CAC 40 slipped 0.1%, with shares of Pernod Ricard (EPA:PERP) slipping nearly 2% after several brokerages trimmed their target price on the stock.
Data showed French consumer spending grew in August.
Spain's IBEX 35 gained 0.4% after retail sales data showed an uptick of 1% in July, while Germany's DAX closed flat after data showed unemployment rose less than expected.
Among single movers, Danish medical equipment maker Ambu slumped 16.4% after lower-than-expected results in its Endoscopy Solutions segment.