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Europe shares close higher as Draghi strikes a dovish tone

European stock markets pared earlier losses to close higher on Thursday, as European Central Bank (ECB) President Mario Draghi used "ultra-dovish talk" in defending the bank's decision to keep monetary policy unchanged.

The pan-European FTSEurofirst 300 Index provisionally closed higher by 0.1 percent at 1,345.05 points -- its eighth rise in a row -- with most core European bourses in positive territory. The FTSE 100 was the standout under-performer, closing down 0.2 percent.

Shares recovered their morning losses as Draghi stated that the central bank was committed to using unconventional measures if necessary, to ensure low inflation does not take hold for too long. He confirmed that all measures - including quantitative easing - were discussed by the Governing Council.

The lack of action by the ECB came despite figures this week showing inflation had slipped to 0.5 percent in the euro zone. This disinflation – where growth in consumer prices starts to weaken – has some economists concerned about the risk of deflation, when consumer prices actually fall.

Read MoreECB holds key rate despite deflation fears

However, Draghi stressed: "The Governing Council is unanimous in its commitment to using all unconventional instruments within its mandate in order to cope effectively with risks of a too-prolonged period of low inflation."

Howard Archer, chief UK & European economist at IHS Global Insight, described it as "ultra-dovish talk" from Draghi.

While Ishaq Siddiqi, a market strategist at ETX Capital, said: "Super Mario again proves he is a master wordsmith by shaking up financial markets with rhetoric about talk at the ECB over the possibilities of employing unconventional easing measures including QE."

"Draghi is relying on his words as a form of action," he added.

European shares had seen a brief spike in mid-morning trade as manufacturing and services data indicated that businesses in the region enjoyed the fastest rate of expansion in three years in the first quarter of 2014.

Markit's Composite Purchasing Managers' Index (PMI) came in at 53.1 in March, signaling output growth for the ninth successive month. A reading above 50 indicates expansion. The upturn in the 18-member currency bloc's fortunes was led by Ireland, where growth surged to a seven-year record in March.

Read MoreEuro zone businesses see strongest quarter in 3 years

Spanish stocks strongly outperformed on the back of strong PMI data, which raised hopes that its recovery was gaining momentum; the IBEX closed up 1.2 pecent.

Meanwhile, retail sales for the euro zone came in better than expected. February figures showed a rise of 0.4 percent compared to the month before and ticked 0.8 percent higher compared to the same period last year.

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CAC 40
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IBEX 35
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US rally

U.S. stocks wiped out their early gains to turn lower Thursday as investors appeared to pause ahead of the widely-watched government's non-farm payrolls data on Friday.

Weekly jobless claims gained more than expected last week, increasing 16,000 to a seasonally adjusted 326,000, according to the Labor Department. Economists polled by Reuters had forecast first-time applications for jobless benefits rising to 317,000.

Read MoreGoldman Sachs: It's showtime for global growth

In Asia, stocks were mostly higher on Thursday after positive U.S. data and as investors welcomed mini-stimulus measures from China.

China's State Council said on Wednesday it was ramping up spending on railways and housing, as well as offering small business tax breaks. However, analysts expect more stimulus in the form of looser monetary policy, such as a cut in bank reserve requirements.

BTG shares rise

In stocks news, shares of health care company BTG rose 1.1 percent after indicating that revenue in the first quarter of 2014 is likely to be in the top end of its guidance.

U.K. media company Daily Mail & GT received a price target upgrade by Jefferies; shares provisionally closed higher by 2.5 percent. Meanwhile, Tullow Oil shares closed the day 5.9 percent higher after an upgrade by UBS.

Shares of tyre maker Nokian Renkaat fell 2.7 percent after the Finnish company cut its profit outlook for the year due to weak demand from its Russian market.

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