European stocks gain, but inflation worries drive weekly decline

European shares advanced on Friday, as investors focused on signs of economic resilience, though the benchmark index ended ‌the week lower, with elevated oil prices and Treasury yields keeping inflation concerns alive.

The pan-European STOXX 600 closed 0.59% higher at 654.18 points, still extending losses for a second straight week.

A sharp jump in U.S. long-term bond yields earlier this week had unsettled global investors and dented risk appetite, before the U.S. Treasury announced ​measures to boost liquidity support, which many considered as a temporary fix.

However, a robust earnings season has supported risk appetite ​in Europe, with the region's economy showing signs of resilience despite the Middle East conflict due to ⁠its limited exposure to AI trade and a clearer monetary policy outlook.

Euro zone business activity is growing at its fastest pace this ​year thanks to new orders in manufacturing, and renewed export growth, data showed on Friday. S&P Global's Flash Euro zone Composite PMI ​Output Index reached its highest since November this month.

Still, investors remain wary of reading too much into recent data, given uncertainty over inflation.

"Europe continues to offer a cautious recovery signal. Industrial improvement without a broad demand surge is close to a Goldilocks outcome for now – enough growth to improve confidence, but ​not enough to remove the ECB's need for vigilance," said Geoff Yu, senior EMEA market strategist at BNY.