Euro Markets Close Higher on Fed Rate Cut Hopes

European stock markets closed higher Wednesday, after retreating mid-day following data which showed that U.S. economic growth for the third-quarter came in much stronger than expected, but then moving firmly into the green again.

The market had been pricing in a 94 percent chance of an interest-rate cut of 25 basis points, according to fed funds futures traded on the Chicago Board of Trade.

But after the U.S. government reported that gross domestic product rose at an annual rate of 3.9 percent in the third quarter, much higher than the 3.1% rate predicted and ADP said U.S. private employers added 106,000 jobs in October, a rate cut seemed less certain.

Still, economists say that the Federal Reserve will go ahead and cut so as not to disappoint Wall Street.

"My guess is they'll still go (with) 25 (points)… but with a much more balanced statement," Laurence Meyer, vice chair at Macroeconomic Advisers and a former Fed governor, told "Squawk Box."

Earnings Front

If it weren't for the Fed, earnings would be dominating talk on trading floors, with another big group of major companies issuing results.

Shares in Alcatel-Lucent rose after the troubled telecom equipment maker announced its emergency restructuring plan, which included cutting 4,000 more jobs by 2009, and also said CFO Jean-Pascal Beaufret will be replaced by the current head of the enterprise division Hubert de Pesquidoux.

Deutsche Bank rose sharplydespite its investment banking business making a third-quarter loss of 179 million euros ($258 million) as the credit turmoil left its mark on Germany's biggest bank. Overall the company managed a profit through sales of stakes and divestments.

And Denmark's pharmaceutical company Novo Nordisk, the world largest insulin maker, reported an 11 percent increase in 9-month operating profit, in line with analysts' expectations, but it lowered its sales guidance for the full year slightly, citing unfavorable foreign exchange rates.

"It's primarily a reflection of the U.S. dollar," Jesper Brandgaard, CFO of Novo Nordisk told CNBC. "What we are facing is a 5 percent lower U.S. dollar compared to when we gave guidance in August. And of course that has a significant impact not only on this year, but also our outlook for 2008."

Novo Nordisk's shares closed 4.6 percent up.

On the mergers and acquisitions battle field, digital device maker Garminannounced a hostile 2.3-billion-euro ($3.31-billion) bid for Tele Atlas, which had already agreed to be bought by Garmin's rival TomTom for 1.8 billion euros.

And on the European macroeconomic front, data showed euro-zone inflation way above the European Central Bank's comfort zone in October, raising the odds for a rate hike by the ECB when it meets next month.