By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets rallied on Thursday, boosted by upbeat Chinese manufacturing data and solid moves for banks after well-received earnings reports.

Stocks held on to gains after both the European Central Bank and the Bank of England kept interest rates on hold.

The Stoxx Europe 600 index traded 1% higher at 302.71, after closing out July with the biggest monthly gain since October 2011 on Wednesday.

Banks posted some of the biggest gains in the index, with Société Générale SA climbing 11% after saying profit more than doubled in the second quarter and confirming its outlook for the next two years.

Shares of Lloyds Banking Group PLC (LYG) rallied 7.8% after the bank said it swung to a profit in the first half of the year from a loss in the same period last year.

Shares of Danske Bank AS jumped 6.4% after the Danish firm posted a bigger-than-expected rise in second-quarter net profit.

Additionally, Banco Popular Español SA rose 5.1% in Madrid, Credit Agricole SA gained 4.3% in Paris and Commerzbank AG picked up 4.4% in Frankfurt.

On a more downbeat note, Royal Dutch Shell PLC (RDSB) slid 4.1% after the oil giant posted a 60% drop in profit for the second quarter, largely due to a write-down on its shale assets in North America.

Central banks in focus

More broadly, the pan-European index kicked off the day in upbeat fashion as investors cheered the decision late Wednesday from the U.S. Fed to leave its asset purchases unchanged at $85 billion a month. The central bank said in a statement that the economy is expanding at a "modest" pace, a change from the "moderate" pace seen in June, with many analysts interpreting the changes as mainly dovish.

Central banks in Europe were also in the spotlight on Thursday after the European Central Bank left its key lending rate at 0.5% as expected. ECB boss Mario Draghi said at the following news conference that the decision was unanimous and that data "tentatively confirm" stabilization of economic activity at "low levels." Read: Live blog of ECB President Mario Draghi's news conference

In the U.K., the Bank of England also left monetary policy unchanged, with the key lending rate remaining at a record low of 0.5%, where it has stood since March 2009. The bank's asset purchases was maintained at 375 billion pounds ($570 billion).

U.K. stocks trimmed gains after the decision, but the FTSE 100 index recovered to trade 0.8% higher at 6,672.14.

Among other country-specific indexes. Germany's DAX 30 index picked up 1.5% to 8,400.83, while France's CAC 40 index rose 1.1% to 4,037.77.

Upbeat China data

The markets were further buoyed by the official China Purchasing Managers' Index (PMI), registering a surprise gain for July, rising to 50.3 from 50.1 the previous month. A reading above 50 indicates expansion.

A separate PMI reading by HSBC and Markit released 45 minutes later differed, however, saying Chinese manufacturing activity was contracting, with the index dropping to an 11-month low.

But resource firms, which tend to rise on positive growth indications from China, seemed to focus on the upbeat official reading. Shares of Rio Tinto PLC (RIO) climbed 2.2% and BHP Billiton PLC (BHP) rose 1.9%. Metals prices were mostly higher.

Other data releases further contributed to the rally, including the euro-zone's manufacturing PMI rising to a two-year high and better-than-expected U.S. jobless claims data.

Movers

Among notable movers in Europe, German retailer Metro AG rallied 9.6% after swinging to a second-quarter profit of EUR33 million after a loss of EUR18 million a year earlier.

On more downbeat note, BMW AG slipped 0.9% after the car maker said second-quarter earnings before interest and taxes decreased 8.8%.

Shares of ArcelorMittal SA shaved off 3.8% in Paris after the steelmaker revised its full-year earnings guidance lower and posted a fourth consecutive quarterly net loss due to lower steel prices and restructuring charges.

Shares of Sanofi SA (SNY) slid 4.1% after the drug maker lowered its earnings guidance for 2013 and reported a plunge in second-quarter profit.

Outside the major indexes, shares of Neste Oil Oyj surged 21% after the Finnish oil-refining firm reported second-quarter profit of 90 million euro ($119 million) from a loss of EUR112 million in the same period last year.

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