Europe close: Stocks moderately higher on hopes inflation may be peaking

European shares extended their recent gains on Wednesday on the back of weaker than expected inflation readings in China, Germany and the US.

Also boosting sentiment were strong corporate updates and less hawkish-than-expected comments from US Federal Reserve Chair Jerome Powell’s in his Congressional hearing testimony on Tuesday.

The pan-European STOXX 600 index was up 0.65% as Powell said the US economy was ready for the start of tighter monetary policy but that it may take several months to take a decision on winding down the central bank's balance sheet.

In parallel, the German Dax added 0.43% to 16,010.32 and the FTSE Mib was up 0.65% to 27,714.26.

"Perhaps there is a sense that this morning’s China numbers, which slid back more than expected on both CPI and PPI in December, could be a leading indicator that global inflationary pressures might be starting to diminish. That seems a little premature, however with US CPI coming in as expected, it’s a compelling narrative on a day when the mood is positive, and long term yields have dropped back," said Michael Hewson, chief market analyst at CMC Markets UK.

According to the US Department of Labor, America's CPI rose at a year-on-year pace of 7.0% in December, up from 6.8% in the month before but below the 7.1% gain anticipated by the consensus. Core CPI on the other hand edged past economists' projections.

Readings on Chinese consumer and producer prices released overnight meanwhile came in comfortably below forecasts.

In European economic news, German wholesale price inflation slipped back to 16.1% in December, a 10-month low after hitting a record high 16.6% in November.

In equity news, Dutch firm Philips plunged more than 15% after saying it expects fourth-quarter core profit to drop around 40%, hit by a global shortage of parts and a recall of ventilators.

Teamviewer shares soared 15% to the top of the Stoxx 600 after the company reported a 20% rise in fourth-quarter billings.

French cloud computing company OVHcloud climbed after a 13.9% rise in first-quarter revenue and said it was on track to achieve its full-year objectives.

Grafton gained as the UK and Irish building materials distributor and DIY retailer upgraded its full-year operating profit expectations after a positive end to the year.

On the downside, JD Sports fell even as it lifted annual profits guidance after revenues rose 10% in the 22 weeks to January 1 and US fiscal stimulus boosted trading.