Feb 14 (Reuters) - European stocks ended modestly higher on Tuesday following upbeat corporate updates but pared most early gains as investors grappled with mixed U.S. inflation data that kept alive expectations of more Federal Reserve rate hikes.
The continent-wide STOXX 600 index (.STOXX) closed 0.1% higher, after touching a near one-year peak earlier in the session.
The U.S. Labor Department's highly anticipated report showed consumer prices accelerated in January, but there were signs of a slowdown in price pressures which could keep the Fed on a moderate interest rate hiking path.
European markets were reacting to the U.S. inflation data, given expectations that the European Central Bank (ECB) and the Bank of England would likely follow the Fed in its monetary policy decisions, said Stuart Cole, head macro economist at Equiti Capital.
"If you are an inflation hawk, you could easily take today's numbers and say that further interest rate rises from the Fed are needed. But, for the inflation doves, there is enough there too to say overall underlying pricing pressures remain on a downwards trend."
Closer to home, data showed euro zone employment grew twice as fast as expected last quarter, pointing to greater underlying inflation pressures that could keep interest rates high for longer.
ECB governing council member Gabriel Makhlouf has said the bank could increase interest rates above 3.5% and likely will not cut them again this year, in an interview with the Wall Street Journal.
The STOXX 600 has risen 8.8% so far this year led by better-than-expected earnings and a brighter outlook for the euro zone economy.
Telecoms (.SXKP) rose 1.5%, on Tuesday, spearheading gains among STOXX 600 sectors, with Vodafone (VOD.L) adding 3.4% after Liberty Global bought a 5% stake in the British telecoms operator.
London's FTSE 100 (.FTSE) rose 0.1%, hitting a fresh record closing high.
Travel and lesiure stocks (.SXTP) climbed 1.3%, boosted by a 1.8% rise in shares of Flutter Entertainment Plc (FLTRF.L) after the world's top online betting firm said it would start consulting shareholders for a U.S. listing.
Coca-Cola HBC AG (CCH.L) rose 5.0% after the Switzerland-based bottler of Coca-Cola products reported better-than-expected full-year operating profit.
Limiting gains in European shares, Thyssenkrupp (TKAG.DE) dropped 10.4% after its finance chief said the German warship-to-car parts conglomerate's restructuring was progressing at a slow pace.
Norwegian aluminium producer Norsk Hydro (NHY.OL) fell 2.4% after posting a bigger-than-expected fall in fourth-quarter core profit.
