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Europe shares rally on hopes of further ECB action

Europe shares ended higher on Wednesday, with investors anticipating more stimulus by the European Central Bank (ECB) after new data showed that the euro zone has entered into deflation.

The pan-European Euro STOXX Europe 600 ended around 0.5 percent higher, after paring some gains from a broad-based rally across most sectors and major bourses.

Meanwhile the single currency hit a fresh nine-year low of 1.1818 against the dollar.

Read MoreEuro heading to parity with US dollar

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New data on Wednesday showed that the euro zone's inflation rate fell into negative territory in December for the first time since 2009. The figures add yet more pressure on the ECB to launch a U.S. Federal-Reserve-style bond-buying program, and markets surged after the news.

The FTSE 100 lead European markets higher, closing around 0.7 percent up, while the German DAX ended around 0.3 percent higher and the French CAC provisionally closed 0.6 percent higher.

Read MoreEuro zone deflation: Why it matters

Unemployment data also out Wednesday morning showed that Italy's jobless levels rose again in November, hitting a new all-time record. In contrast, Germany's jobless rate fell to another record low last month.

U.S. stocks jumped on Wednesday, with the S&P 500 rebounding from a five-session dive, after data on the labor market beat estimates and investors bet minutes from the Federal Reserve would signal ongoing stimulus.

Gunmen kill at least 12 in France

In France, at least 12 people were killed in a shooting Wednesday at a French satirical magazine Charlie Hebdo, after it published cartoons of the Muslim Prophet Muhammad, police told reporters.

Two police officers were among those killed. Currently, the number of injured people is thought to be around 20, of which four are critically wounded, according to Reuters.

France's terror alert was raised to the highest level after the shooting, with President Francois Hollande describing it as an "act of terrorism".

Read MoreGunmen on the run after killing 12 at Paris magazine

Energy stocks stage small recovery

The commodity markets were back in focus, with oil prices rebounding slightly after Brent crude futures briefly fell below $50 a barrel for the first time since May 2009. The oil sector was one of the major laggards on Wednesday morning, but staged a turn around from mid-morning onwards.

On the FTSE 100, Sainsbury closed around 2.1 percent lower after the retailer reported a decline in sales in the 14 weeks up to to January 3, and a "challenging outlook."

Other supermarkets Tesco and Marks and Spencer rallied, while WM Morrison slipped around 1.3 percent ahead of trading statements due Thursday.

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