European Stocks Rebound on Falling Oil Prices, Interest Rate Projections

European stocks rebounded on Friday, reaching their highest level in two months, as investors focused on interest rate projections following a key inflation reading in the United States.

The pan-European Stoxx 600 index rose 0.5% to 639.10, with solid gains across the continent and a 1.4% surge in Milan.

Oil prices pulled back after adding over 25% in under two weeks, providing some relief following a recent surge that had sparked another increase in energy costs.

The recent escalation in the Middle East conflict had caused investors to expect an interest-rate hike from the Federal Reserve next week to stop inflation from getting out of control.

Markets are now pricing in a 90% chance of a 25 basis-point rate hike, up from 70% before the data, which showed the headline US inflation rate held steady at 3.4% in August and core inflation eased to 2.4%.