Europe close: Stocks extend bounce amid dovish central bank talk

Stocks on the Continent are flashing green, with investor sentiment a tad firmer on the back of helpful comments from US central bankers and expectations for a dovish result to Thursday's European Central Bank policy meeting.

Overnight, the head of the US Federal Reserve bank of St.Louis, James Bullard, had openly broached the possibility that the US economy might soon need an interest rate cut.

He was followed on Tuesday by a dovish - although not equally so - John Williams from the San Francisco Fed, while Fed chair Jerome Powell told an audience in Chicago that the Fed was watching developments on the trade front closely.

Nevertheless, analysts were being cautious, with Credit Suisse strategist Andrew Garthwaite having removed the day before his tactical 'overweight' on global equities.

"Tariffs are now being used by the US administration as a political rather than an economic tool, something which greatly increases the risk of escalation and an economic policy mistake," he told clients.

"Could auto tariffs in Europe be used to open up the EU agricultural market, or to force Europe to spend more on defense? Compromise still our central case."

The benchmark Stoxx 600 added 0.59% to finish at 372.67, alongside a gain of 0.51% to 5,268.26 for the Cac-40, while Milan's FTSE Mibtel rose 1.79% taking it to 20,229.42.

And the German Dax had managed to reverse earlier losses and climb 1.51% to 11,971.17.

European equities had started the session weaker, with technology issues caught in Monday's downdraft in the US technology space after American regulators agreed to look into possible anti-competitive behaviour by the country's tech giants.

Yet the Stoxx 600's technology sub-index pared an initial near 2% fall to finish down by just 0.25%.

Boosting Italian issues, Prime Minister Giuseppe Conte warned that he would step down if the two ruling parties, the League and Five Star movement, did not stop squabbling.

Nonetheless, a few hours afterwards League leader, deputy prime minister Matteo Salvini, flush with his success at the ballot box at the last European elections, threatened that "there would be a problem" if the current impasse remained in 15 days' time, ANSA reported.

Back in Europe meanwhile, a weaker than expected reading on Eurozone consumer prices likely fed expectations of a dovish outcome to the European Central Bank policy meeting next Thursday.

According to Eurostat, year-on-year the headline rate for Eurozone CPI fell from 1.7% in April to 1.2% for May (consensus: 1.4%), while printing at 0.8% at the core level (consensus: 1.0%).

In a separate report, the EU's statistical agency said that the rate of unemployment in the single currency bloc had fallen from 7.7% for March to 7.6% in April (consensus: 7.7%).