Europe Markets

Europe rallies on China rate cut, new ECB stimulus

Europe rallies on China rate cut, new ECB stimulus

European shares closed sharply higher on Friday as investors reacted to a surprise policy move by the Chinese central bank and dovish words by Mario Draghi, the president of the European Central Bank (ECB).

China cuts, new ECB purchases

The pan-European Euro Stoxx 600 index closed over 2 percent higher as mining stocks - with their heavy exposure to the world's second largest economy - surged close to 6 percent on the news. China's central bank announced it was cutting its benchmark lending and deposit rates and giving banks more freedom.

In early afternoon trade, the ECB also announced it had started its planned purchase of asset-backed securities, in a move to encourage banks to lend and revive the economy, helping to buoy sentiment further.

Read MoreStocks surge as China central bank cuts rates

Construction stocks and energy firms also saw impressive gains that helped the German DAX to provisionally close 2.6 percent, while the French CAC 40 logged gains of around 2.7 percent at market close. Italy's FTSE MIB officially ended 3.9 percent higher.

The rally brings a strong week for European market to a close, with the DAX and the FTSE MIB ending over 5 percent higher and CAC finishing 3.5 percent higher on the week.

In the U.S., stocks traded nearly 1 percent higher following the action from both China's central bank and the ECB.

Draghi speaks

Ahead of China's announcement, the president of the European Central Bank Mario Draghi, made a speech at a European banking conference in Frankfurt. He said that the euro zone economy is likely to remain stagnant in the short-to-medium term. He added that the central bank stands ready to act fast to combat low inflation and that the inflation situation in the euro area has also become increasingly challenging.

The announcement of the ECB's new stimulus measures followed on Friday afternoon.

Read MoreECB must act to tackle low inflation: Draghi

EU 'one step away' from Japan-style deflation: Expert

Bouygues rises

In stocks news, Bouygues Telecom shares shot higher by 3.9 percent after comments by the founder of Altice, Patrick Drahi, who said that his European cable group is looking to acquire the firm.

Shares of telecom TalkTalk fell 3.7 percent after the U.K.-listed company received a price target downgrade by Berenberg.

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