By Bansari Mayur Kamdar
(Reuters) -European shares extended gains on Wednesday as a lower inflation reading from France, the euro zone's second-biggest economy, and better-than-expected business activity data boosted sentiment.
The pan-European STOXX 600 rose 0.8%, while France's CAC 40 added 1.3%.
Data on Wednesday showed euro zone business activity contracted less than initially thought, suggesting the bloc's recession may not be as deep as feared.
Further, preliminary data showed inflation in France slipped in December from a record high in the previous month, tracking a slew of encouraging data from improving euro zone manufacturing numbers to a slowdown in Germany's inflation.
"This is continuing the narrative that prices are slowing faster than expected, which is certainly welcome news for the euro zone as a whole because it eases the pressure on consumers and also companies," said Streeter.
The regional STOXX 600 ended 2022 sharply lower on fears of an economic slowdown as central banks raised rates to rein in soaring prices, driven by surging fuel costs since Russia invaded Ukraine and a reopening of the economy after the COVID-19 pandemic.
Investors are now waiting for the minutes from the Fed's December meeting for cues on the U.S. central bank's monetary policy tightening path.
The STOXX 600 index has risen 3% in the first three trading days of the new year, helped by strong economic data, easing of natural gas futures and hopes of a post-COVID recovery in China despite surging cases.
China-exposed luxury companies LVMH and Richemont rose 3.3% and 1.4%, respectively, lifting the index.
Economy-sensitive financials such as banks and insurers also led gains in early trading.
UK's commodity-heavy FTSE 100 lagged European peers as energy shares and miners fell 1.9% and 1.1%, respectively, tracking the weakness in crude and copper prices.
Meanwhile, data showed fresh food prices at British supermarkets in early December were 15.0% higher than a year earlier, weighing on UK sentiment.
Sanofi (EPA:SASY) edged 0.6% up after the French healthcare company said it expected its fourth-quarter earnings, which will be published early next month, to reflect a boost from foreign exchange movements and flu vaccine sales.
Switzerland-based energy company BKW AG rose 4.8% after upgrading its 2022 outlook.