(Bloomberg) -- European stocks jumped as a slowdown in US inflation fueled wagers of interest rate-cuts by the Federal Reserve. The UK’s domestically focused index outperformed as the country’s price pressures also cooled.

The Stoxx Europe 600 Index rallied 1.3% by the close, the most since September, as data showed US consumer prices rose in December by less than forecast after months of faster underlying inflation. The 10-year bond yield sank below 4.7% after the report, and traders priced in a Fed rate cut by July versus earlier expectations of September, according to swaps data.

“Markets are very content as the disinflation trend is still well and going,” said Jeanne Asseraf-Bitton, head of research and strategy at BFT IM in Paris. “Investors keep the view that the Fed may still be in a position to cut rates if Trump’s policies prove not to be so inflationary.” 

Interest rate-sensitive renewable stocks surged after the data, with Vestas Wind Systems A/S among the best performers. Orsted AS rose 4.8%. Real estate and retail sectors also outperformed. About 87% of the constituents of the Stoxx 600 were higher.

The mid-cap FTSE 250 rallied 2.9% after UK inflation unexpectedly slipped back for the first time in three months in December, keeping alive hopes of a Bank of England interest-rate cut next month. 

SGS SA fell on news that it’s in talks to combine with Bureau Veritas SA, creating a European testing and certification company with a combined market value of more than $33 billion. Bureau Veritas shares gained.

European stocks have struggled to sustain a rally after hitting a record high in September, amid worries about sluggish economic growth and potential US tariffs under the new Trump administration. 

“We remain optimistic for European stocks for 2025 as demand and GDP growth recovers gradually,” said Panumure Liberum strategist Joachim Klement.

Among other individual movers, Ubisoft Entertainment SA rose after Bloomberg reported that the French video-game company’s founding Guillemot family and Tencent Holdings Ltd. are considering creating a new venture that would include certain Ubisoft assets.

For more on equity markets:

• Rate Jitters Complicate the Case for Small Caps: Taking Stock
• M&A Watch Europe: SGS in Bureau Veritas Talks, Bunge, Ubisoft
• BAT and Haleon Holders Jump-Start 2025 Block Trades: ECM Watch
• US Stock Futures Little Changed; Avadel Gains
• JD Sports’ Kick in the Teeth: The London Rush

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--With assistance from Allegra Catelli.

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