European stocks rise on cooling inflation, Germany's DAX hits new peak

European shares rose on Monday, pushing the German blue-chip index to a record high after data showed eurozone inflation eased in July but sticky core prices and upbeat growth data tempered optimism about the European Central Bank pausing rate hikes soon.

The pan-European STOXX 600 edged up 0.1%, on course to end the month about 2% higher. The German DAX inched up 0.1% to hit a record high for the second consecutive session, boosted by drugs and pesticides maker Bayer.

Italy's FTSE MIB added 0.5% to touch fresh 15-year highs, lifted by the state-controlled defence and aerospace group Leonardo.

Data showed euro zone consumer prices grew by 5.3% this month versus 5.5% in June, extending a downtrend that started in autumn. Excluding energy and unprocessed food, prices increased by 6.6% after a 6.8% rise a month earlier.

Another set showed the bloc returned to growth in the second quarter, with gross domestic product expanding by 0.3%, above expectations of 0.2% in a Reuters poll of economists. "This won't be welcome news in Frankfurt, and will help the hawk's cause," Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said in a note.

"Coupled with scary-looking Q2 wage data, we still think that the ECB hawks will successfully push for one final hike in September, before the data turn decisively against them. This is a close call." The ECB raised rates for the ninth successive time last week, but left the door open to a pause in September as inflation pressures show tentative signs of easing and recession worries mount.

Cooling inflation in the United States and Germany, some upbeat earnings and hopes that the Federal Reserve and the ECB are near the end of their tightening cycle have spurred a rally in markets in recent weeks. Limiting further upside on Monday, Heineken shares slid 6.7% after the world's second-largest brewer by volume cut its 2023 profit growth forecast as an economic slowdown in Vietnam depressed first-half earnings.

Other spirits makers Diageo and Anheuser-Busch Inbev fell about a percent each. An index of euro zone banks edged up 0.3% after the European Banking Authority's (EBA) annual stress test results showed three of 70 banks from the European Union failed to meet binding capital requirements.

Novo Nordisk gained 2.4% as it launched its blockbuster weight-loss drug Wegovy in Germany, its first big European market.