German share price index DAX graph is pictured at the stock exchange in Frankfurt
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, December 23, 2022. Reuters

European shares climbed on Tuesday, tracking a global rally in equities after China further relaxed its COVID-19 curbs, raising hopes of a recovery in the world's second-largest economy.

The pan-European STOXX 600 index gained 0.4% to start the holiday-shortened week higher.

China on Monday said it would drop its quarantine requirements for inbound visitors, further easing three-year border controls aimed at curbing COVID. [MKTS/GLOB]

While London and Dublin markets remained closed for the Christmas holiday, most European bourses advanced in early trading.

Chinese reopening and the in-line U.S. inflation data on Friday could provide a "minor boost to equity markets," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

However, rise in COVID-19 cases in China could "throw a shadow on the reopening glow," Ozkardeskaya added.

China-exposed luxury firms LVMH and Richemont rose nearly 1.7% each.

Miners and energy stocks added 1.0% and 1.4%, respectively, according to Refinitiv data based on Thursday's closing price, as commodity prices jumped on hopes of demand recovery in top consumer China. [MET/L] [O/R] On the day, these sectors also rose.

Industrials and banks gained for a second straight session, lifting the broader European index.

Traders and analysts said thin trading volumes also influenced market moves.

German companies expect only a mild recession next year despite headwinds from the energy crisis, raw material shortages and a tepid global economy, a Reuters survey showed.

Shares in Germany, Europe's largest economy, gained 0.5%.

The European STOXX 600 index has lost nearly 12% so far this year, and is headed for its worst annual performance since 2018, on fears of economic recession due to aggressive monetary policy tightening by central banks globally.

Among individual movers, Leonteq fell 4.4% after the Swiss fintech firm said it was lowering its profit expectations for 2022 due to reduced client demand in the second half of the year.

Belgium-based Lotus Bakeries NV declined 4.6% to the bottom of the index.