European shares end volatile quarter higher

By Shubham Batra, Sruthi Shankar and Bansari Mayur Kamdar

(Reuters) -European shares rose on Friday, as fears of a full-blown banking crisis continued to recede and a record monthly drop in euro zone inflation figures and a dip in the U.S. Federal Reserve's favoured inflation gauge lifted sentiment.

The pan-European STOXX 600 index closed 0.7% higher.

The index was headed for a second-straight quarterly gain, but on track to end March slightly lower after action-packed weeks following the collapse of two mid-sized U.S. lenders and the takeover of Credit Suisse.

Banks slipped 0.4% - with Swedbank down 4.9%. The banking sector dropped 14% in March to post its worst monthly performance since 2020.

While a slew of measures to support the sector and a rally in technology stocks have pushed the STOXX 600 to three-week highs, investors have not completely shaken off fears of risks in the future.

"What lies ahead is tricky. Our forecasts for economic growth and interest rates are largely sideways. We don't expect rate cuts by the Federal Reserve or the ECB this year," said Willem Sels, global CIO, Private Banking & Wealth Management at HSBC.

The market will have to reassess its dovish reaction as inflation, especially core inflation, was coming down "agonizingly slowly," he added.

Eurostat data showed inflation in the euro zone dropped by the most on record in March. However, growth in core prices accelerated.

The European Central Bank still has a "little way" to go with interest rate increases to vanquish core inflation, French ECB policymaker Francois Villeroy de Galhau said in a newspaper interview.

"As core euro-zone inflation edged up to a new all-time high in March we think policymakers will remain in hawkish mood for now," Andrew Kenningham, chief Europe economist at Capital Economics, said in a note.

"Our forecast is for another 100bp of rate hikes in the coming months - substantially more than the markets are pricing in."

Separate data showed U.S. personal consumption expenditures inflation fell in February, with the core reading lower than expected.

Rate-sensitive tech shares and real estate stocks gained 0.5% and 0.4%, respectively.

Among individual stocks, Swiss engineering company ABB gained 1.8% as it said it would launch its new $1 billion share buyback on April 3 with the intention to buy up to 30 million of its shares.

Adidas AG gained 5% as UBS raised the Germany-based athletics company's price target, while H&M rose 3.4%, amid a streak of analyst upgrades after the Swedish fashion retailer posted Q1 results above market expectations.

Retail shares continued to maintain momentum, adding 1.7%.

(Reporting by Shubham Batra, Sruthi Shankar and Bansari Mayur Kamdar in Bengaluru; Editing by Janane Venkatraman, Nivedita Bhattacharjee and Jonathan Oatis)