Europe Markets: European stocks set for best month of 2017

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European stocks traded in tight ranges on Friday, but stayed on track for their best month of the year after a string of upbeat data and a rally for the banking sector on rising expectations for tighter monetary policy.

The Stoxx Europe 600 index SXXP, +0.08%  slipped 0.1% to 386.11, but was flipping between gains and losses. For September, the pan-European index was on course for a 3.3% rise, its biggest monthly advance since December last year. For the third quarter, which also wraps up after Friday’s trade, the index was up 1.8%, rebounding from a 0.5% loss in the second quarter.

Banking rally: Banks have been among the biggest advancers in September, with the Stoxx Europe 600 Banks index FX7, -0.07%  looking toward a 4% monthly gain. The sector has been boosted by expectations that central banks in both Europe and the U.S. will tighten policy in the coming months.

In the eurozone, European Central Bank President Mario Draghi earlier in September indicated it will unveil plans to start scaling back its aggressive easing program in October. Meanwhile, the Bank of England hinted interest rates could rise for the first time in a decade in November, while the U.S. Federal Reserve reaffirmed that a rate hike is on the cards for December.

Higher interest rates are usually good for banks as they can charge more for their loans.

Among biggest advancers in the sector, shares of Royal Bank of Scotland Group PLC RBS, +0.26%  is up 5.9% for the month, Commerzbank AG CBK, +0.34%  rose 3.8% and Banco BPM SpA BAMI, -0.68%  added 4.3%.

The banking index was down 0.2% on Friday.

Friday’s stock movers: Among biggest movers on Friday, shares of Volkswagen AG VOW3, -2.31%  lost 2.9% after the car maker warned that its third-quarter operating result would be hit by a charge of around €2.5 billion ($2.94 billion) connected to recalls in North America.

Economic news: The unemployment rate in Germany fell to a record low in September at 5.6% as jobless claims declined more sharply than expected.

At 10 a.m., attention turns to the eurozone inflation data, forecast to have risen to 1.6% in September from 1.5% in August.