European shares ended a choppy session in positive territory on Thursday as a recovery in commodity prices helped energy and mining shares and fears over price pressures were partially quelled by U.S. inflation data.
Oil and gas shares were the top performing sector on the European market as oil futures held above $115 a barrel and traders cited bullish positioning in September oil options.
StatoilHydro gained 2.7 percent, while heavyweights Royal Dutch Shell and BP were up 0.5 to 1.9 percent.
U.S. core consumer inflation data for July came in largely in line with expectations, which initially knocked markets lower as it lowered the chances of a rate cut this year, but investors reassessed the data and pushed stocks up.
The FTSEurofirst 300 index of top European shares ended up 0.5 percent at 1,185.64 points, having swung between gains of 1.1 percent and a loss of 0.4 percent.
The index fell 2.4 percent on Wednesday but is up 0.5 percent in August.
"This is still a bear market rally, but every time we have a rally you have the possibility that it develops into something more," said Philippe Gijsels, senior equity strategist at Fortis Bank in Brussels.
"We are not telling clients to rush in because we want confirmation. Even if this were to be the bottom, we won't go up in a straight line either."
The FTSEurofirst has gained about 9 percent since hitting multi-year lows in mid-July as oil prices in particular have retreated from their all-time highs.
Base metal prices eased in afternoon trade, but the mining sector still rallied, drawing strength from an earlier rise in copper and gold.
Antofagasta rose 4.7 percent, BHP Billiton gained 4.6 percent, Rio Tinto bounced 3 percent and Anglo American was up 4.7 percent, making it the largest individual positive weight on the FTSEurofirst 300.
Data Supporting Stocks
With U.S. core consumer inflation showing no signs of accelerating rapidly, particularly against a backdrop of lower oil prices, the chances of a U.S. rate rise later this year waned further.
Data showed that the Euro zone economy shrank quarter-on-quarter in the April-June period for the first time since measurements for the single currency area began in 1985.
"The markets have already discounted lower growth, and what is likely to move them is the prospect of lower interest rates," said Mike Lenhoff, chief strategist at Brewin Dolphin.
"It all seems to be going in one direction, with the negative growth in Japan and the eurozone figures ... the only thing that's holding up the U.S. economy is net trade, and that contribution could diminish very rapidly."
As data on both sides of the Atlantic pointed to more scope for policymakers to leave their respective benchmark interest rates unchanged or even lower them, banks reversed earlier losses.
UBS rose 3.6 percent, Standard Chartered gained 4 percent and BNP Paribas gained 1.3 percent.
Swiss Life topped European losers, falling 8.3 percent after the insurer said it had taken a 26.75 percent stake in German financial adviser MLP and was buying most of the remaining shares in another German company, AWD, which rose by more than 31 percent.
L'Oreal fell 4.6 percent after Morgan Stanley downgraded the stock to "underweight" from "equal-weight."