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* STOXX 600 set to break 3-week losing streak
* Retail sector recovers after dropping almost 3%
* Zalando plunges after profit warning (For a Reuters live blog on U.S., UK and European stock markets, click or type LIVE/ in a news window)
By Sruthi Shankar and Susan Mathew
June 24 (Reuters) - European stocks jumped 2.6% on Friday, pushing them into positive territory for the week as investors started to scale back central bank tightening bets, spurring inflows into risky assets.
The pan-European STOXX 600 index marked its best session in more than three months. It had hit a fresh 2022 low in the previous session when weaker-than-expected euro zone business activity data weighed on sentiment.
The benchmark, which until Thursday was down on the week, posted weekly gains of 2.4% thanks to Friday's surge, breaking a three-week losing streak.
Healthcare, banks and technology, sectors led broad-based gains on the day. The retail sector which had dropped almost 3% in the session to March 2020 lows, erased those losses to end 1.9% higher for its best day in more than three months.
"Talks of a recession have gone up significantly and dented commodity prices and caused bonds to rally. That's certainly helped equity markets," said Roger Jones, head of equities at asset manager London & Capital.
Trading has remained volatile in recent days as investors fear that rising interest rates and soaring inflation will sharply slow earnings and economic growth. This caused traders to slash their bets on how far central banks will be able to lift interest rates this cycle.
"Markets have been driven by stories, hopes, and fears about growth and inflation over the course of the first half of the year ... the only near-certainty is that the path to the end of the year will be a volatile one," said equity strategists at UBS.
The Ifo Institute's survey showed German business morale fell more than expected in June, as rising energy prices and the threat of gas shortages unsettled businesses in Europe's largest economy.
The retail sector had been hit after data showed British consumers cut back on shopping in May in the face of fast-rising inflation, and a measure of their confidence sank to a record low this month.
Adding to worries, German online fashion retailer Zalando issued a profit warning sending its shares to over seven-year lows before it cut some losses.
Italy's Saipem dropped 21.8% after the energy services group said it would have financial resources available for less than one year if its plans to raise capital did not go through.
France's Sanofi and UK's GlaxoSmithKline rose 5.0% and 2.1% after a late-stage data on an experimental COVID-19 vaccine from the drugmakers showed the shot confers protection against the Omicron variant of the vaccine. (Reporting by Sruthi Shankar in Bengaluru; Editing by Uttaresh.V and Alison Williams)