Stock markets rose on Friday as investors welcomed data showing eurozone inflation cooled to a three-year low and the US economy was stronger than expected.

European equities were up in midday deals after official figures showed that eurozone inflation slowed to 2.2 percent in August, fuelling hopes that the European Central Bank will cut interest rates next month.

London, Paris and Frankfurt were up around midday, with the German index extending gains after a record close on Thursday.

The drop in inflation "supports the expectation that the ECB will cut rates by 25 basis points in September", said GianLuigi Mandruzzato, senior economist at EFG Asset Management.

Mandruzzato said, however, that an increase in services prices raises the likehood that the ECB will not reduce rates again before December.

ECB board member Isabel Schnabel cautioned on Friday that the Frankfurt-based institution should "proceed gradually and cautiously" on rates.

Speaking before the eurozone inflation figures were released, she pointed in particular to "persistent price pressures in the services sector".

But other analysts said the ECB will likely move on rates again later this year.

"Services inflation might not be quite as bad as it first appears," said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, noting that the increase might be linked to the Paris Olympics.

"If services inflation declines over the rest of the year as we expect, the ECB is likely to continue gradually reducing interest rates with another 25bp (basis point) cut in December," he said in a note.

- US economy thrives -

Asia also rallied earlier following a record day on Wall Street after data on Thursday showed the US economy expanded more than initially thought in the second quarter and jobless claims dipped last week.

The US economy grew at an annual rate of 3.0 percent in the April to June period -- revised upwards from 2.8 percent.

The news indicated the US Federal Reserve was achieving its goal of guiding the economy to a soft landing after raising interest rates to a 23-year high in efforts to bring prices under control.

Investors will next pore over the Fed's preferred gauge of inflation due to released later on Friday and jobs data next week.

The indicators will play a major role in whether the Fed goes ahead with an expected rate cut next month and how big it might be.

While bank chief Jerome Powell said last week that it was time to begin lowering rates, some decision-makers remain cautious.

US markets ended on a mixed note on Thursday, with the Nasdaq and S&P 500 weighed by a 6.4 percent drop in Nvidia after the chip titan released earnings that fell short of top forecasts from Wall Street.

However, the Dow bucked the trend and ended a fresh record high.

Asia ended the week on a high, with tech firms that took a hit Thursday as part of an Nvidia-fuelled retreat clawing back some of their losses.

- Key figures around 1050 GMT -

  • London - FTSE 100: UP 0.3 percent at 8,407.80 points
  • Paris - CAC 40: UP 0.5 percent at 7,677.11
  • Frankfurt - DAX: UP 0.2 percent at 18,954,51
  • Tokyo - Nikkei 225: UP 0.7 percent at 38,647.75 (close)
  • Hong Kong - Hang Seng Index: UP 1.1 percent at 17,989.07 (close)
  • Shanghai - Composite: UP 0.7 percent at 2,842.21 (close)
  • Dollar/yen: UP at 145.27 yen from 144.93 yen on Thursday
  • Euro/dollar: UP at $1.1079 from $1.1077
  • Pound/dollar: UP at $1.3172 from $1.3170
  • Euro/pound: DOWN at 84.10 pence from 84.11 pence
  • West Texas Intermediate: UP 0.1 percent at $75.97 per barrel
  • Brent North Sea Crude: DOWN 0.1 percent at $79.87 per barrel
  • New York - Dow: UP 0.6 percent at 41,335.05 (close)