European stocks mark best week in 7 months

European stocks marked their best weekly performance in seven months on Friday, as a bright start to the earnings season helped ease investor concerns about higher inflation.

The pan-European STOXX 600 index (.STOXX) rose 0.7 per cent to close at a one-month high, ending the week with a 2.6 per cent gain after a sharp rebound in risk appetite in the past two sessions.

Banks (.SX7P) were the top boost to the index, up 1.8 per cent after forecast-beating quarterly results from Wall Street's biggest lenders on an economic rebound and deals bonanza.

European banks recovered all their pandemic losses to trade at pre-pandemic levels on Friday, while US banks (.SPXBK) have surged to record highs recently.

Retailers (.SXRP), oil & gas (.SXEP) and travel (.SXTP) all rose between 1.6 per cent and 2 per cent.

"A renewed focus on the bottom-up news has helped global equities over the last couple of sessions, and results from the US banking sector delivered another significant boost to indices overnight," said Peel Hunt analyst Ian Williams.

European earnings kick into high gear in the next few weeks, with analysts expecting a near 47 per cent jump in third-quarter profit for companies listed on STOXX 600, as per Refinitiv IBES data. Energy and industrial companies are forecast to provide the biggest boost to earnings performance.

Europe's inflation upswing is still seen as temporary and there are no signs yet that the recent surge is becoming embedded in wages, European Central Bank President Christine Lagarde said on Thursday.

Investors have fretted over rising inflation caused by a global energy crisis, supply-chain bottlenecks and labour shortages slowing a corporate profit rebound from the pandemic shock.

"Slowing China growth and global inflation concerns could bring headwinds to risk assets," Citi analyst Aaron Lui said in a note. "Global equities are likely to be under pressure in coming months."

UK-listed shares of Rio Tinto (RIO.L) fell 1.4 per cent after the Australian miner cut its 2021 iron ore shipments forecast, citing a tight labour market, while Swiss banking software firm Temenos (TEMN.S) tumbled 13.7 per cent after its results.