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European shares rise on Big Pharma boost, German inflation slows

German share price index DAX graph is pictured at the stock exchange in Frankfurt

By Bansari Mayur Kamdar and Shreyashi Sanyal

(Reuters) -European shares rose on Tuesday, with large-cap pharmaceutical companies boosting the main STOXX 600 index, while the region's largest economy, Germany, saw a slowdown in inflation for a second month in a row in December.

The pan-regional STOXX 600 rose 1.2%, closing at its highest level in nearly three weeks.

Novo Nordisk, AstraZeneca and Novartis each rose about 2.8% as the European healthcare index gained 1.8%.

JPMorgan said it expected Europe's pharmaceutical and biotechnology sector to maintain its lofty premium, at least during the period of recessionary concerns, and named Novo Nordisk and AstraZeneca as its top picks, while upgrading Novartis.

Data showed German inflation eased last month due to falling energy prices and the government's one-off payment of household energy bills, coming in below expectations even as analysts warn a continued slowdown is not a given.

Investors have been looking for signs of price pressures easing in the region, especially after the European Central Bank's aggressive monetary policy tightening.

"The sharp fall in German inflation in December was due to one-off energy subsidies, so it will probably reverse in January," said Franziska Palmas, senior Europe economist at Capital Economics.

French Prime Minister Elisabeth Borne said inflation was expected to peak at the start of 2023 before retreating.

European stocks ended their first session of the year higher on Monday after euro zone manufacturing data suggested the worst had passed as supply chains begin to recover and inflationary pressures ease.

"We saw very effective PMI figures and we are also seeing the natural gas futures continue to dive, which means that the energy cost for European companies is getting cheaper due to the very mild weather that we have right now in Europe," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Data on Tuesday also showed material shortages eased further in Germany's manufacturing sector towards the end of the year.

European shares largely outpaced Wall Street, which was dragged down in its first trading day of the year by declines in Apple Inc and energy stocks. [.N]

Among individual movers, Deutsche Bank rose 1.6% on a report it is on track with restructuring targets and will retain its forecasts until 2025 despite risks from the Ukraine war, aggressive inflation and recession.

Germany's Brenntag gained 4.8% after the chemicals distributor said it was ending talks over a possible takeover of smaller U.S. rival Univar Solutions.

(Reporting by Bansari Mayur Kamdar and Shreyashi Sanyal in Bengaluru; Editing by Nivedita Bhattacharjee and Mark Potter)