BENGALURU: Real estate and miners led a rally in European shares on Thursday as risk appetite received a strong boost from the US Federal Reserve’s indication of lower borrowing costs in 2024, with the focus shifting to the European Central Bank’s (ECB) policy decision next.

The pan-European index advanced 1.2% by 0920 GMT, touching a near two-year high, and the euro zone’s top blue-chip index gained 0.7%, reaching an over 22-year high.

France’s CAC-40 and Germany’s DAX also touched fresh all-time highs, up 0.9% and 0.7%, respectively. The euro zone’s equity volatility index slid to its lowest level since 2020, reflecting market optimism. Also aiding equities was Germany’s 10-year bond yield dropping to its lowest since March.

Real estate stocks soared 5.8%, leading sectoral gains, driven by 7%-9% gains in Sweden’s Fabege, Balder, Sagax and Germany’s Vonovia . The market rally was largely broad-based, with miners jumping 3.5% tracking higher metal prices. Only the insurance sector was down. The Fed left rates unchanged, with Chair Jerome Powell suggesting that rate hikes were likely done with due to easing inflation and that discussion of rate cuts was “coming into view.”

Market participants are now pricing in around 155 basis points of ECB rate cuts in 2024, up from Wednesday’s bets of 135 bps. The ECB, facing a difficult balancing act, is expected to hold rates steady at 1315 GMT and is likely to slash growth and inflation forecasts while trying to temper rate-cut bets.

“The ECB is not exactly going to be pleased that rate cut expectations have already gone this far. It is also likely to lower its inflation forecasts significantly, but not yet to a level where the all-clear can be given for inflation,” said Michael Pfister, FX analyst at Commerzbank Research. “President Christine Lagarde is likely to try a little harder than the Fed chief to convince the market of an ECB that is still cautious and hawkish.”