By Ankika Biswas, Khushi Singh and Sruthi Shankar
(Reuters) - European stocks closed higher on Wednesday after signs of fast-cooling inflation in Britain boosted UK equities, while shares of Belgian pharmaceutical company Argenx sank after a failed drug study.
The pan-European STOXX 600 edged up 0.3%, with UK's blue-chip FTSE 100 index jumping 1.0% after data showed British inflation plunged in November to its lowest rate in over two years, driving up bets that the Bank of England will cut interest rates in the first half of next year.
Other main regional markets, however, paused after a recent run of gains as investors weighed comments from European Central Bank (ECB) policymakers.
Two of the ECB's most prominent hawks including Bundesbank President Joachim Nagel and his Dutch colleague Klaas Knot joined the chorus of policymakers trying to talk traders out of betting on upcoming interest rate cuts.
Equity markets in the U.S. and Europe have rallied in recent weeks on expectations of a dovish policy pivot by the Federal Reserve and the ECB following evidence of falling inflation and slowing economic growth.
"The ghost of inflation has been transformed into Father Christmas for UK investors today," noted Chris Beauchamp, chief market analyst at online trading platform IG.
"Stocks do seem fair set to rally into Christmas and given the still underweight allocations among fund managers, there may be enough fuel in the tank to keep the rally going well into January and beyond."
Data showed German producer prices fell more than expected in November, a day after another set confirmed that euro zone inflation slowed sharply to 2.4% last month on a year-on-year basis.
Overall, hopes of monetary policy easing next year have pushed the STOXX 600 up almost 13% year-to-date, with the German DAX and France's CAC 40 trading near record highs.
Among single stock movers on Wednesday, Argenx slumped 25.6% to post its biggest percentage loss on record after its autoimmune drug failed a study testing it in patients with two skin conditions.
The slump dragged Belgium's blue-chip BEL20 index down 2.4%.
Telefonica (BME:TEF) climbed 3.2% to top the STOXX 600 after the Spanish government said it would buy a stake of up to 10% in the company in a counterbalance to a similar acquisition by Saudi Arabia's STC.
The broader telecommunications index advanced 1.2%.
Deutsche Post (ETR:DHLn) lost 1.9% after U.S. peer FedEx (NYSE:FDX) cut its full-year revenue forecast and reported lower-than-expected quarterly profit.