European shares pare gains as ECB leaves rates unchanged, awaits clarity on trade

European stocks pared gains on Thursday after the European Central Bank left interest rates unchanged as expected, while investors were also focused on upbeat results from major banks and cooling trade tensions with the United States.

With inflation now back at the ECB's 2% goal and the economy resilient, European Central Bank President Christine Lagarde said policymakers were more keen on the outlook on trade and its impact on the economy before deciding on further interest rate cuts.

Interest rate futures showed traders trimmed their expectations for a September interest rate cut and yield on the 2-year German bond also spiked, which weighed on stocks. 

"A September cut remains in play, but there's a real debate about the timeline," said Madison Faller, a global investment strategist at J.P. Morgan Private Bank.

"Trade uncertainty lingers, but the major tail risks have faded as the rumored 15% U.S.–EU tariff deal now looks more likely than the 30% scenario."

Earlier in the day, sentiment was buoyant after two EU diplomats said on Wednesday that a deal between the U.S. and European Union would impose a broad 15% tariff on imports from the bloc, avoiding a harsher 30% levy planned from August 1.

The pan-European STOXX 600 index  was up 0.1% after hitting a six-week high earlier in the day.

In a busy day for corporate results, banks were in a bright spot after second-quarter profit beat from Deutsche Bank and BNP Paribas, 

The German lender Deutsche Bank jumped 8.2%, while French bank BNP Paribas was flat after a near 3% jump earlier in the day. The eurozone banks index touched its highest since 2008.

Reckitt  raised its annual revenue forecast after the consumer-goods company's second-quarter net sales growth topped expectations, sending shares soaring 9%.

Cooling trade tensions have lifted the STOXX 600 about 19% from its lows in April after U.S. President Donald Trump slapped steep tariffs on its trading partners. The index still remains about 2% away from its March historic high.