(Reuters) – European stocks extended gains for a third session on Thursday, as signs of a strong corporate earnings season and expectations that the European Central Bank (ECB) will stick to a dovish stance lifted demand for risky equities.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, July 19, 2021. REUTERS/Staff

The pan-European STOXX 600 rose 0.7%, recovering fully from its worst selloff in 2021 earlier this week.

Travel and leisure stocks topped sectoral gains again, rising 2.9%. The index had hit a five-month low on Monday on fears over the growing spread of Delta variant.

In earnings-driven moves, Sweden-based private equity firm EQT jumped 11.9% to the top of STOXX 600 after reporting upbeat first-half earnings, while Swiss engineering company ABB hit its highest since November 2007 after it doubled its full-year sales outlook.

“Right now, it is less a question of a big equity drawdown. It is more about individual stocks and real stock picking,” said David Haynal, portfolio manager at Eric Sturdza Investments.

“This earnings season is going to be important to judge that.”

Consumer goods giant Unilever Plc slid 4.4% after it cut its full-year operating margin forecast due to surging commodity costs.

Of the quarter of the STOXX 600 companies have reported so far, 61% have topped analysts’ profit expectations, according to Refinitiv IBES data. Typically, 51% exceed earnings forecast.

The benchmark STOXX 600 hit all-time highs last week on optimism about a strong recovery in economic growth and earnings. However, markets have turned volatile recently on concerns about higher inflation and a resurgence in virus cases.

Euro zone stocks rose 1% ahead of the ECB’s policy decision, due at 1145 GMT, when it is all but certain to promise an even longer period of stimulus to make good on its commitment to boost inflation.

The ECB unveiled a tweaked inflation target earlier this month that could try to push inflation temporarily above its 2% target after a decade of misses.

“The question will be whether the ECB goes beyond what is already expected by markets: falling bond yields and a weakening euro over recent weeks suggest some ECB loosening is already in the price,” Paul Jackson, global head of asset allocation research at Invesco, said in a note.

France’s Publicis climbed 3.5% after forecasting that its financials would make a full return to pre-pandemic levels this year.

Italy’s Monte dei Paschi jumped 5.7% after the lender and its former top investor reached a preliminary accord to settle their legal disputes.

Graphic: Euro area PE ratio and inflation expectations –

Reporting by Sruthi Shankar in Bengaluru; Editing by Shailesh Kuber and Arun Koyyur

Read More