NEW YORK, United States -- Stock markets gained ground on Wall Street and in Europe on Thursday as US labor market data gave investors more confidence the Federal Reserve would hold back on further interest rate hikes in its battle against inflation.
Worries about tighter monetary policy had weighed earlier after European Central Bank chief Christine Lagarde said more rate increases were likely despite a welcome drop in eurozone inflation in May.
But a report Thursday by payroll firm ADP on US private sector employment showed a gentler than expected hiring slowdown last month, along with slowing pay growth.
"Wage-driven inflation may be less of a concern for the economy despite robust hiring," ADP's chief economist Nela Richardson said.
That raised hopes that official nonfarm payroll data due Friday would convince the Fed to pause its rate increases for the world's biggest economy, helping to lift stocks on both sides of the Atlantic.
"While there have been some steady signs of progress on inflation, the economy has remained very resilient, as has the labour market," said Craig Erlam, senior market analyst at OANDA.
Although private hiring cooled less than expected in May according to ADP data, "if the market can make the case that we can add jobs and not have inflation, then that's a good sign," said Steve Sosnick of Interactive Brokers.
Investors also got relief from the US House of Representatives' approval on Wednesday of a deal between US President Joe Biden and Republican leaders to raise the debt ceiling.
The bill now moves to the Senate before Biden can sign it off as the government faces a June 5 deadline when it could run out of cash.
The accord appears to have ended weeks of wrangling that had kept investors on edge.
The S&P 500 Index rose 1.0 percent while the tech-rich Nasdaq surged 1.3 percent.
In Europe, sliding energy prices saw eurozone inflation dip to 6.1 percent in May from 7.0 percent in April, though ECB chief Lagarde told a conference in Germany that it was "still too high."
"We are getting a bit closer to our cruising altitude, not there yet, and that means that we need to continue climbing, but not as rapidly," Lagarde said.
"Inflation in the eurozone has been falling faster than anticipated," said Richard Flax, chief investment officer at Moneyfarm. But "this is unlikely to stop the ECB from pressing ahead with further rate rises."
Asian stocks closed mixed while the dollar diverged against major currencies as investors also focused on signs of weakness in China's economy.
On Wednesday, figures showing that the country's vast manufacturing sector contracted further last month highlighted the difficult task Beijing faces to kickstart growth.
But there was some good news Thursday in a private survey that suggested China's economy had expanded slightly, as the Caixin manufacturing index reading beat estimates for a contraction.
Key figures around 2030 GMT
New York - Dow: UP 0.5 percent at 33,062.36 (close)
New York - S&P 500: UP 1.0 percent at 4,221.09 (close)
New York - Nasdaq: UP 1.3 percent at 13,100.98 (close)
London - FTSE 100: UP 0.6 percent at 7,490.27 (close)
Paris - CAC 40: UP 0.6 percent at 7,137.43 (close)
Frankfurt - DAX: UP 1.2 percent at 15,853.66 (close)
EURO STOXX 50: UP 0.9 percent at 4,257.61 (close)
Tokyo - Nikkei 225: UP 0.8 percent at 31,148.01 (close)
Hong Kong - Hang Seng Index: DOWN 0.1 percent at 18,216.91 (close)
Shanghai - Composite: FLAT at 3,204.63 (close)
Euro/dollar: UP at $1.0762 from $1.0689 on Wednesday
Dollar/yen: DOWN at 138.79 yen from 139.34 yen
Pound/dollar: UP at $1.2525 from $1.2441
Euro/pound: DOWN at 85.90 pence from 85.92 pence
Brent North Sea crude: UP 2.3 percent at $74.28 per barrel
West Texas Intermediate: UP 3.0 percent at $70.10 per barrel