European stocks index in biggest gain in three weeks

European equities jumped yesterday, recovering from a two-session fall, with a key index scoring its biggest gain in more than three weeks, on rising expectations of a cut in US interest rates.

Recently battered banks, such as Barclays and HBOS, and miners and oil shares crowded the list of gainers.

Shares in Ericsson rallied 5.4 per cent as the telecom network maker painted a rosy picture of current market conditions and said it was increasing market share in all areas.

The pan-European FTSEurofirst 300 index ended 1.7 per cent up at 1,506.9, recovering from a three per cent fall in the past two sessions, its biggest gain in more than three weeks.

The losses came after Friday's shock fall in US monthly payrolls sparked talk of a potential recession in a market gripped by a credit crunch due to defaults on US mortgages.

"We feel that you have got the risk where you don't know where the subprime issue is and then you have got to downgrade banks 2007, 2008 and 2009 numbers because some of those streams of revenue have just totally disappeared," said Andrea Williams, head of European equities at Royal London Asset Management.

"But the bigger issue is whether that actually is sufficiently bad to slow dramatically global GDP or to take the US into recession."

"At the moment, we are thinking it doesn't take the US into recession. And therefore we still have, to some degree, an industrial bias in the portfolios," Ms Williams said.

The FTSEurofirst index is up 1.6 per cent so far this year but eight per cent below a six-and-a-half-year-high hit in mid-July.

Around European bourses, London's FTSE 100 rose 2.4 per cent, Paris's CAC-40 firmed 1.7 per cent and Frankfurt's DAX added 1.1 per cent.

Shares in takeover target ABN AMRO gained three per cent as traders cited talk that a consortium of banks led by Royal Bank of Scotland was likely to win control of the Netherlands' biggest bank. RBS was up 2.9 per cent.

RBS, along with Belgian-Dutch financial services group Fortis and Spain's Santander, are offering €71 billion, mostly in cash for ABN, trumping a rival offer by Britain's Barclays by about €12 billion.

"There's talk that the consortium is close to getting approval from the Dutch central bank," said one hedge fund manager, adding that there was also speculation that details of a rights issue by Fortis might be in the market.

Among gainers, miners BHP Billiton, Anglo American and Rio Tinto rose between 3.9 and 4.2 per cent, supported by a rise in base metal prices and oil and gold.