The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February 15, 2022.
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February 15, 2022. Reuters / STAFF

European stocks edged higher on Thursday, tracking overnight gains on Wall Street following a widely anticipated U.S. interest rate hike, while lingering optimism about Russia-Ukraine peace talks kept sentiment largely upbeat.

The pan-European STOXX 600 index rose 0.2% and was on track to erase losses recorded in March when fears about the Ukraine conflict pounded financial markets.

Wall Street indexes rallied on Wednesday as investors took in stride the long-expected start of a U.S. monetary tightening. The Federal Reserve increased rates by a quarter point, as expected, and telegraphed equivalent hikes at every meeting for the remainder of this year.

"It is not totally unexpected what the Fed said in terms of further rate hikes. What is worrying for the market is the confirmation of quantitative tightening, that will come sooner or later," said Salvatore Bruno, head of investments at Generali Investments Partners.

"The Fed also said the U.S. economy is strong enough to be able to absorb the tightening, this was the positive news that markets took."

Meanwhile, investors also ratcheted up bets of a rate hike by the European Central Bank and priced in a total of 50 basis points worth of increases.

Commodity stocks led the gains in Europe, with the energy sector rising 1.4% as crude prices climbed about 3% after the International Energy Agency (IEA) warned of a supply shortfall. [O/R]

Miners rose 0.4% as Shanghai copper and aluminium prices continued to benefit from hopes of more stimulus measures by top metals consumer China. [MET/L]

Most euro zone markets were in the red, while UK's FTSE 100 steadied ahead of a Bank of England meeting, where policymakers are expected to lift interest rates. [.L]

Germany's Thyssenkrupp fell 10.7% after suspending its 2021/22 forecast for free cash flow before mergers and acquisitions due to the Ukraine crisis, and said it was unclear if it would still be able to spin off its steel division.

British food-delivery company Deliveroo jumped 8.8% after saying it aimed to reach breakeven in core earnings in around two years' time.

France's water and waste management firm Veolia rose 1.4% after saying it should see its current net income grow by more than a fifth this year.