Banks, commodities lead European shares higher

European shares rose for the third straight day by midday, led by banks, while commodity stocks benefited from merger-related news and higher metal and crude prices.

At 1141 GMT, the FTSEurofirst 300 index of top European shares was up 0.8 percent at 1,487.86 points, back in positive territory for the year after a credit market-linked slide in summer and a seven percent fall in November, on track to be the worst month since early 2003.

Banks, recently the worst sufferers from the credit crunch, rebounded to be the top weighted gainers on the benchmark. UBS rose nearly three percent, Credit Suisse two percent and BNP Paribas one percent.

Miners gained strongly, sparked by continued merger talk around Rio Tinto, which again rebuffed a bid from rival BHP Billiton. Rio gained nearly three percent, also boosted by a newspaper article on a possible rival Chinese bid, though a China Investment Corp official denied the report.

Antofagasta gained 4.3 percent, Xstrata 4 percent and Lonmin 3.1 percent. And index-heavyweight energy shares tracked a rise in crude prices towards the $98.50-a-barrel mark. BP rose 1.2 percent, Royal Dutch Shell rose 0.4 percent and Total ticked up 0.1 percent. But analysts said any recovery would be tentative, at best. "It's not like the fears have gone away, credit markets remain extremely tight, and the same worries are still out there. So this rally is fragile," said Edmund Shing, strategist at BNP Paribas, in Paris. The share rise followed sharp gains in the United States in an abbreviated trading day on Friday and in Asia earlier on today.

Around Europe, Germany's DAX index, the UK's FTSE 100 index and France's CAC 40 were all up around 0.4 percent.