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French inflation slows unexpectedly in December to 6.7%

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Euro zone recession may not be as deep as feared - PMI

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STOXX 600 adds 1.4%, French stocks jump 2.3%

Jan 4 (Reuters) - European shares closed higher for the third straight session on Wednesday as a lower inflation reading from France, the euro zone's second-biggest economy, and better-than-expected business activity data boosted sentiment.

The pan-European STOXX 600 closed 1.4% higher, while France's CAC 40 jumped 2.3%. Both indexes hovered at three-week highs.

Data on Wednesday showed euro zone business activity contracted less than initially thought, suggesting the bloc's recession may not be as deep as feared.

Preliminary data showed inflation in France slipped in December from a record high in the previous month, tracking a slew of encouraging data from improving euro zone manufacturing numbers to a slowdown in Germany's inflation.

"This is continuing the narrative that prices are slowing faster than expected, which is certainly welcome news for the euro zone as a whole because it eases the pressure on consumers and also companies," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

The regional STOXX 600 ended 2022 sharply lower on fears of an economic slowdown as central banks raised rates to rein in soaring prices, driven by surging fuel costs since Russia invaded Ukraine and a reopening of the economy after the COVID-19 pandemic.

Investors are now waiting for the minutes from the Fed's December meeting for cues on the U.S. central bank's monetary policy tightening path.

European shares rose much more than Wall Street for the second straight session, in a sign that investors might be warming up to continental stocks.

"After years in which it was folly to do anything but buy American stocks, there are signs perhaps that non-U.S. equities are coming into their own once again," said Chris Beauchamp, chief market analyst at online trading platform IG.

"It looks like investors are much keener on putting their money to work this side of the Atlantic."

The STOXX 600 index has risen 3.6% in the first three trading days of the new year, also helped by the easing of natural gas futures and hopes of a post-COVID recovery in China despite surging cases.

China-exposed luxury companies LVMH and Richemont rose 5.0% and 2.4%, respectively, lifting the index.

Economy-sensitive financials such as banks and insurers also led gains in early trading.

Switzerland-based energy company BKW AG rose 3.8% after upgrading its 2022 outlook.

Britain's commodity-heavy FTSE 100 lagged European peers as prices of oil and base metals fell. (Reporting by Bansari Mayur Kamdar and Shreyashi Sanyal in Bengaluru; Editing by Vinay Dwivedi, Dhanya Ann Thoppil and Alison Williams)