PARIS: European stocks bounced back on Thursday as data on easing inflation sparked a debate on the need for further interest rate hikes beyond this month, while hopes that the US will avoid a debt default also boosted investor sentiment.

The pan-European STOXX 600 index closed 0.8% higher, after closing at a two-month low in the previous session.

Basic resources, media and energy were the top sector gainers. Both headline and core inflation in the euro zone eased in May and were well below expectations, coming on the heels of recent lower-than-expected inflation data from Spain, France and Germany that spurred hopes that interest rates will peak in September, compared with the previous forecast of December.

“The inflation data is in the right direction, and takes some of the pressure off expectations of even more aggressive European Central Bank hikes,” said Giles Coghlan, chief market analyst at HYCM, who sees another drop in inflation figures and some losses in European job markets further paving the way for expectations around an easing in policy tightening.

On that note, ECB member and Bank of France governor Francois Villeroy de Galhau noted that rate hikes were beginning to have an impact on inflation and the upcoming hikes will be marginal, while President Christine Lagarde continued to stress the need for more policy tightening.

Some Fed officials pointed towards an interest rate hike “skip” in June, prompting a quick reversal of market expectations for another hike as the US central bank weighs the value of caution against still-strong inflation data.