European stocks rose yesterday, as a sharp rally in the mining and industrial sectors helped the market resume Friday's recovery in the wake of the surprise discount rate cut by the US Federal Reserve.

But renewed concerns over the fallout in the US subprime market kept investors on edge and limited the gains.

The pan-European FTSEurofirst 300 index unofficially closed 0.5 per cent higher at 1,481.43 points, adding to Friday's 2.3 per cent rally.

Europe's benchmark index, down 0.1 per cent on the year, is still down 9.4 per cent since reaching a six-and-a-half-year high in mid-July.

Among the biggest gainers, BHP Billiton surged 4.2 per cent, Arcelor Mittal rose 3.4 per cent and ABB gained 2.3 per cent.

Equity markets have recently plunged as defaults on risky US subprime mortgage loans hit a flurry of financial institutions and fuelled worries over the potential impact on the credit market and the global financial system.

On Friday, the Fed cut the discount rate it charges banks in an emergency move aimed at stabilising credit markets after days of sharp sell-offs.

"If the market volatility and the uncertainty continue, particularly in the credit market, the Fed will probably come with a cut of its Fed funds rate. It's what the market is now looking for,"said Bert Jansen, an equity strategist at Exane BNP Paribas in Paris.