European stocks rebounded on Friday, helped by a retreat in oil prices and bond yields, offering the market a temporary sense of relief even though the benchmark index still logged its worst weekly performance since July.

The Stoxx Europe 600 index closed 0.5% higher, yet still posted a 1.7% decline for the week. A key US consumer price gauge rose slightly more than expected last month, leading swap traders to increase their bets on an interest rate hike next week. Benoit Peloille, Chief Investment Officer at Natixis Wealth Management in Paris, noted, "These figures reinforce the case for the Fed to raise rates next week. What the equity market needs to know is where long-term yields are heading, and today's data provided no fresh clues."

Banking stocks stood out, with Banco Santander and Intesa Sanpaolo both climbing over 1%. Travel and leisure shares also advanced as Brent crude fell to around $104 per barrel. Novo Nordisk saw its shares drop 3.4% after Morgan Stanley downgraded its rating on the company.

European equities have underperformed since hitting a record high in August, as rising energy prices have rekindled concerns over inflation and tighter monetary policy. The Stoxx Europe 600 index has declined for a second consecutive week. Florian Ielpo, Head of Macro Research at Lombard Odier Investment Managers, said the focus next week will be on how the Fed assesses the economic outlook following Friday's inflation report. Ielpo added, "This report offers neither reassuring nor alarming signals, so it does little to clear the path for the Fed, meaning the ultimate policy decision will now hinge heavily on adjustments to growth and inflation projections."