By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets closed out a volatile trading day with gains on Thursday, as investors digested fresh data from the U.S. to gauge if it could trigger the Federal Reserve to taper its stimulus program.

The Stoxx Europe 600 index climbed 0.4% to close at 303.55.

The gain was not enough to recover from a 1.9% loss seen on Wednesday, when the Organization for Economic Cooperation and Development slashed the global growth forecast. Over the past week, stock markets have in general struggled for direction, as investors search for catalysts to push markets higher, while worrying that the U.S. Federal Reserve will soon taper its easing program.

"I think the upside for equities look a little limited. Whilst you would hope to see stronger data coming through the next few months, it is A) already factored in and B) it could trigger the Fed to take the foot of the accelerator. A large portion of the recent rally has been due to markets trading on QE rather than the real economy," said Peter Dixon, strategist at Commerzbank.

"Many markets are posting double-digit gains for the year to date, so we had a big rally and there's scope for the market to give back some of these gains," he added.

Among notable movers in Europe, shares of Allianz SE climbed 2.8% after Nomura lifted the rating on the insurance firm to buy from neutral.

Banks were also mostly higher. Analysts at Exane BNP Paribas suggested banking stocks have further to run, arguing that the sector is one of the most attractive value plays in the market with an around 20% further upside to fair value. Shares of Intesa Sanpaolo SpA gained 2%, Credit Agricole SA picked up 1.3% in France and heavyweight HSBC Holdings PLC (HBC) added 1.1%.

U.S. data

The broader European stock markets trimmed gains in the afternoon, after data showed the number of Americans who filed for unemployment benefits rose by 10,000 last week to 354,000, exceeding the 345,000 level expected by analysts.

Meanwhile, U.S. growth for the first quarter was revised lower to 2.4% from an initial estimate of 2.5%.

A gauge of pending home sales increased 10.3% in April from the same month last year, hitting the highest level in three years.

Investors have been closely monitoring data coming out of the U.S., after Federal Reserve Chairman Ben Bernanke last week said that an improvement in data could trigger the central bank to start tapering its asset purchases in coming months. The bank currently buys bond worth $85 billion a month and analysts have credited the aggressive easing strategy as one of the main reasons global equity markets in recent weeks have climbed to multiyear highs.

"So the question now is how the Fed will read today's data? It's unlikely to change the FOMC's stance of reducing or increasing the pace of asset purchases and more likely to keep them on hold at the next policy meeting and provide little or no details on when and how the central bank will eventually dial back stimulus measures," said Ishaq Siddiqi, market strategist at ETX Capital, in a note.

"For now, it's short-term respite and an opportunity to pick up stocks battered in the selloff in price-action over the past few sessions since the Fed's meeting minutes last week," he added.

U.S. stocks traded higher on Wall Street.

On the data front in the euro zone, the European Commission said the Economic Sentiment Indicator for the region picked up 0.8 points to 89.4 in May.

Movers

Among notable movers, mining firms were on the rise, tracking metals prices higher. Shares of Rio Tinto PLC (RIO) added 2.5% in London and Anglo American PLC gained 1.6%.

The U.K.'s FTSE 100 index climbed 0.5% to 6,656.99.

Chip maker ARM Holdings PLC (ARMHY) climbed 1.8%, after analysts at J.P. Morgan Cazenove said in a note that inventory data looks supportive of a continuing up-cycle for the sector.

Another chip maker, STMicroelectronics NV added 2.1% in Paris.

France's CAC 40 index rose 0.6% to 3,996.31.

Germany's DAX 30 index put on 0.8% to 8,400.20.

Outside the major indexes, SBM Offshore NV dropped 2.3%, after Morgan Stanley cut the oil-services firm to underweight from equal-weight. Read: Ahead of OPEC meeting, oil-services firms drop on broker downgrade

Shares of tire maker Pirelli & C. SpA put on 3.1%, after Goldman Sachs lifted the firm to neutral from sell.

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