By Sudeshna Ghoshal and Purvi Agarwal
Oct 2 (Reuters) - European stocks rebounded on Friday, after a bond-driven selloff, as retreating oil prices and softer-than-expected US jobs data eased expectations for near-term rate hikes by the Federal Reserve.
The pan-European STOXX 600 closed 0.8% higher, after touching its lowest in more than three months on Thursday.
US job growth slowed more than expected in September and figures for the prior two months were revised sharply downward, prompting traders
to pull back on US rate hike bets for October.
"Markets dodged a bullet with a weaker-than-expected jobs report likely taking an October Fed rate hike off the table," said Ronald Temple, managing director of Lazard Asset Management.
"But with two more months of inflation data to be released before the December meeting, the Fed will be compelled to tighten policy again."
Bond yields declined, with the one on the German 10-year bond, a benchmark for the euro zone, down over 6 basis points at 3.454%. Oil prices also fell by $3 a barrel, further aiding risk appetite.
The surge in global government bond yields has battered equities in recent weeks, leaving investors averse to risk assets. Despite gains in the session, the STOXX 600 posted weekly declines.
Most sectors ended in positive territory on Friday, with renewed AI enthusiasm putting technology stocks in the lead.
AT & S Austria Technologies & Systemtechnik gained 10%, Infineon Technologies was up about 9%, while Aixtron and Soitec added 7.6% each.
European banking stocks were little changed on Friday but registered their biggest weekly fall since April, hurt by concerns about higher interest rates denting the economy.
Meanwhile, data showed euro zone inflation surged more than expected in September and is likely to rise further in the coming months.
The ECB lifted interest rates last month, and traders are currently pricing in 81.8% chances of a rate hike in December, LSEG data showed.
"Higher interest rates combined with elevated inflation are a negative for equities, but whether equity markets will react badly depends on how long investors feel the problem will last," said Michael Field, chief equity strategist at Morningstar.
France presented its 2027 budget on Thursday, seeking to enact unpopular belt-tightening measures aimed at reducing the deficit and reassuring the bond market ahead of next year's presidential elections.
Late last month, France's 10-year borrowing costs reached the highest since the global financial crisis in 2008.
Among stocks, London's IG Group slid 22.6% to the bottom of the STOXX 600 after the online trading firm cut its annual revenue forecast due to subdued trading volatility.
It was IG's biggest one-day drop since December 2016.
Julius Baer rose 2% after the Swiss bank announced a share buyback programme of up to 600 million Swiss francs ($724 million).
(Reporting by Sudeshna Ghoshal and Purvi Agarwal in Bengaluru; Editing by Jonathan Ananda, Mrigank Dhaniwala and Diti Pujara)
