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European ends higher after ECB holds rates

European equities closed higher on Wednesday after the European Central Bank (ECB) held its key interest rates unchanged.

The pan-European FTSEurofirst 300 wobbled around the flat line in early trade, before closing lower 0.11 percent. The ECB opted to keep its key refinancing interest rate at a record low of 0.05 percent, its deposit facility at -0.20 percent and the marginal lending facility at 0.3 percent.

At his monthly press conference following the ECB governing council meeting, bank President Mario Draghi also raised inflation expectations for this year to 0.3 percent. Inflation next year is seen at 1.5 percent. During the speech, the euro rose 0.2 percent on the day against dollar.

London's FTSE 100 index closed higher around 0.3 percent, ahead of the Bank of England's rate announcement Thursday. Like other European markets, the French CAC closed higher at 0.6 percent, with Germany's DAX closing around 0.8 percent.

Read MoreForget the confetti bomb, ECB faces a minefield

Meanwhile, data released on Wednesday showed that business activity in the the euro zone slowed slightly in May.

The final reading of Markit's composite Purchasing Manager's Index (PMI), which includes both the services and manufacturing sector, came in at 53.6 last month, above an earlier estimate but down from April. A reading over 50 marks expansion.

Meanwhile, the rate of unemployment in the euro area fell slightly to 11.1 percent in April, according to the European Union's statistics office Eurostat, from 11.2 percent in March.

Greece eyed

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Greece also remains in focus for markets as hopes of a debt deal grow.

On Wednesday, the Financial Times reported details of a draft proposal from Greece's creditors -- the European Commission, International Monetary Fund and European Central Bank -- that include the requirement for Greece to post a primary budget surplus of 1 percent of gross domestic product (GDP) this year. This would be expected to rise to 3.5 percent in 2018 and is significantly below the target of 3 percent included in the country's existing EU/IMF bailout.

Greek stocks closed higher by around 4.1 percent, after rising sharply on the report, with traders attributing the rise to speculation a reforms-for-rescue deal was near.

Read MoreTake it or leave it:Will Greece accept deal?

Greek Prime Minister Alexis Tsipras is expected to come under pressure to accept the deal, but Greece denies that it has seen the proposals yet.

Greece faces a 300 million euro ($327.9 million) payment to the IMF Friday, but there are doubts the country can honor the debt without further financial aid.

Delhaize, Ahold rally

In individual stocks news, supermarket groups Delhaize and Ahold closed near the top of benchmarks on reports that merger talks between the two could be finalized as soon as June. Delhaize climbed to close around 7.4 percent, while Ahold closed around 5.9 percent.

U.K. home builders were given a lift after JPMorgan raised the price target of Taylor Wimpey. Stocks in the group climbed to a close around 1.7 percent, with rivals Wolseley up 0.05 percent and Persimmon up by 0.87 percent.

German car makers BMW, Daimler and Volkswagen reported U.S. car sales figures for May late on Tuesday, with sales for BMW up 4.7 percent, 11 percent higher at Mercedes and 8 percent higher at Volkswagen. Shares in BMW closed around 1.05 percent.

In Asia, meanwhile, stock markets were mixed Wednesday, with higher-than-expected Australian economic growth failing to boost shares there out of negative territory. Japan's Nikkei index was slightly lower for a second day after snapping a 12-session winning streak on Tuesday.

Australia's economy expanded 2.3 percent in the first quarter from the year-ago period, beating forecasts from a Reuters poll for a 2.1 percent rise on-year.

Meanwhile in China, the HSBC/Markit services purchasing managers' index (PMI) for May rose to 53.5, up from 52.9 in April and comfortably above the 50-point level that separates expansion from contraction.

- See Kit Tang contributed to this market report.

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