The EURO STOXX 50 index was up 2.3%, touching its highest level since December 2007, while the pan-European STOXX 600 index rose 1.4% to hit a 17-month high.
The European Central Bank raised interest rates by 25 basis points to their highest in over two decades and dropped a reference to rates having to be “brought” to a level that cuts inflation quickly enough.
This raised the possibility of a pause next month, with traders now seeing a roughly 38% chance of a 25 basis-point hike in September compared to 44% before the rate announcement.
“They (ECB) have hiked as expected. But if you look at some of the keywords, they have actually started to take some of the most aggressive messaging out,” said Daniela Hathorn, senior market analyst at Capital.com.
“We’re starting to see a little bit of a shift here in the potential that we may see another rate hike and that may be it.”
The ECB’s decision follows a quarter percentage point rate hike by the US Federal Reserve on Wednesday, which also spurred bets that the US monetary tightening cycle was over.
In a busy day of earnings, Nestle rose 2.6% after the world’s biggest packaged food company improved its full-year organic sales forecast.
Eurozone’s biggest bank BNP Paribas climbed 3.0% as it beat analysts’ estimates for net income in the second quarter.
The STOXX 600 is set for a second consecutive month of gains as hopes of an end to rate hikes and signs of resilience in the US economy offset concerns about a slowing eurozone economy and profit growth.
Among regional markets, Spain’s IBEX touched its highest in three years and Italy’s FTSE MIB was at 2008 highs.
Aixtron advanced 13.2% as the chip systems manufacturer raised its annual outlook while STMicroelectronics added 8.9% on an upbeat third quarter sales forecast.
The moves pushed Europe’s tech index up 4.4% to lead sectoral gains.
Airbus fell 1.6% after the planemaker failed to reaffirm its near term industrial target, while Volkswagen slid 2.1% after the German automaker lowered its 2023 forecast for deliveries.
British financial stocks lagged, with Barclays down 5.3% after it warned of growing pressure on its UK business.