Traders welcomed data showing Chinese retail sales grew more than expected last month, boosting hopes the economy is stabilising after an extended slowdown

London (AFP) - Stock markets rallied Friday as forecast-busting Chinese data boosted hopes the world’s number-two economy may be stabilising after an extended slowdown.

Investor sentiment was boosted on expectations that central banks on both sides of the Atlantic would soon stop hiking interest rates.

Tokyo closed up more than one percent, helped by a rally in tech investor SoftBank that came after the firm’s chip design unit Arm soared 25 percent on its trading debut in New York.

Paris led the way in Europe with a gain of 1.6 percent approaching the half-way stage.

Equities were “building on strong gains in yesterday’s session after the European Central Bank signalled its hiking cycle is over, whilst stronger-than-expected Chinese data overnight has helped secure the upbeat mood,” noted Neil Wilson, chief market analyst at Finalto.

The news out of Beijing, which followed a recent batch of encouraging figures, came a day after authorities further eased restrictions on China’s banks in a bid to kickstart growth.

Asia’s gains built on a surge in New York and Europe Thursday, fuelled by healthy readings on the US consumer sector and indications from the European Central Bank that it may have reached the end of its interest-rate hiking cycle.

The latest developments provided some much-needed relief to investors, who have endured a tough few weeks owing to concerns that a series of above-par economic figures will pressure the US Federal Reserve to lift borrowing costs once more this year.

Traders cheered after data showed Chinese retail sales and industrial production jumped more than expected last month.

The figures were the latest suggesting the economy could be stabilising, with inflation, trade and services all showing a marked improvement in recent weeks.

They also came a day after the People’s Bank of China announced a cut in the amount of cash lenders must hold in reserve, a decision aimed at freeing up cash for loans that can juice business activity.

“The improvement in industrial production and retail sales is encouraging,” said Frances Cheung of Oversea-Chinese Banking Corp.

“Recent economic data point to some stabilisation in economic activities.”

However, officials added a note of caution with the latest readings, with the National Bureau of Statistics warning “there are still a lot of uncertainties and instabilities externally, and the domestic demand still appears insufficient”.

While the government has unveiled a number of targeted, piecemeal measures to charge the economy, investors have for months been calling for a “bazooka” stimulus similar to that seen in 2008 during the global financial crisis.

Traders were given a solid platform after Wall Street rallied Thursday on figures pointing to a still-resilient US consumer sector.

The readings, which came with in-line wholesale inflation data, suggest the economy could be headed for a soft landing as the Fed tries to take the steam out of and bring down inflation by hiking interest rates.

They also all but confirmed the Fed will likely not lift rates next week, and while there is still the possibility of one more hike this year, traders remain optimistic.

The ECB gave a strong hint it may be done with its monetary tightening campaign after pushing its rates to their highest level since the introduction of the euro in 1999 and forecasting inflation would come down to a near-target 2.1 percent in 2025.

- Key figures around 1100 GMT -

London - FTSE 100: UP 0.9 percent at 7,739.01 points

Frankfurt - DAX: UP 1.0 percent at 15,963.94

Paris - CAC 40: UP 1.6 percent at 7,428.22

EURO STOXX 50: UP 1.0 percent at 4,322.18

Tokyo - Nikkei 225: UP 1.1 percent at 33,533.09 (close)

Hong Kong - Hang Seng Index: UP 0.8 percent at 18,182.89 (close)

Shanghai - Composite: DOWN 0.3 percent at 3,117.74 (close)

New York - Dow: UP 1.0 percent at 34,907.11 (close)

Euro/dollar: UP at $1.0657 from $1.0645 on Thursday

Pound/dollar: UNCHANGED at $1.2409

Dollar/yen: UP at 147.86 yen from 147.46 yen

Euro/pound: UP at 85.89 pence from 85.73 pence

Brent North Sea crude: UP 0.4 percent at $94.03 per barrel

West Texas Intermediate: UP 0.4 percent at $90.54 per barrel