LONDON, March 22 — European shares rose today, boosted by gains in banks on prospect of aggressive rate hikes following hawkish comments from US Federal Reserve Chair Jerome Powell, while energy stocks extended a rally on the back of higher oil prices.

The pan-European STOXX 600 gained 0.5 per cent after a lacklustre start to the week. The European banks sector index climbed 2.1 per cent, while oil & gas stocks advanced 0.3 per cent.

Other cyclical sectors such as insurers and autos, preferred bets for a rising rates scenario, rose more than 1.5 per cent.

Powell said yesterday the central bank must move "expeditiously” to raise rates and possibly "more aggressively” to battle red-hot inflation, just as markets digested last week’s 25-basis-point rate hike.

"Fed communications highlight a singular focus on containing inflation right now,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

"Responding to a question, Powell said ‘nothing’ would prevent the Fed from delivering a 50 bps hike if appropriate.”

Money markets are now pricing an around 50 basis points of rate hikes by the European Central Bank (ECB) by the end of the year.

The ECB said earlier this month that it would not be in a hurry to raise rates but many conservative policymakers have argued that a rate hike, the first such move in over a decade, should remain on the table as inflation is not as temporary as the central bank once expected.

Russia’s invasion of Ukraine has triggered a rally in commodities including oil and industrial metals on concerns about supply disruptions, with crude prices also bouncing after some European Union members discussed a potential oil embargo on Moscow.

London’s oil-exporter heavy FTSE 100 index led gains among its continental peers for the second straight day, rising 0.6 per cent. The STOXX 600 index has fallen more than 6 per cent so far this year, while the FTSE 100 has outperformed with gains of 1.2 per cent during the same period.

Finnish utility Fortum rose 0.8 per cent as it agreed to sell its 50 per cent stake in Fortum Oslo Varme for 10 billion Norwegian crowns (RM4.8 billion).

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Italian defence group Leonardo was 1.5 per cent higher after its US unit DRS agreed to sell its satellite communications business GES to SES for US$450 million.

Finland’s Nokian Tyres Plc said it would continue production in Russia to retain control of its local factory, at a time when many companies are halting operations in protest. Shares of the company rose 2.8 per cent. — Reuters