European stocks ended higher yesterday, reversing some of the previous session's sharp losses as energy and utilities stocks rallied and eclipsed fading hopes for another prompt US rate cut after strong inflation data.

News of a Goldman Sachs upgrade to Citigroup's debt after the bank's decision to consolidate its structured investment vehicles eased worries over the credit crisis and sent banking shares rising, with UBS up 1.8 per cent, and Royal Bank of Scotland up 1.2 per cent.

Citigroup said late on Thursday it plans to rescue $49 billion of SIVs.

The FTSEurofirst 300 index of top European shares closed 0.43 per cent higher, at 1,516.37 points. It dropped 2.4 per cent on Thursday, hit by renewed worries over the impact of the credit squeeze on financial institutions. Volumes on the FTSEurofirst were modest, accounting for just over 60 per cent of the average daily volume seen in the last 30 trading days.

Oil producers rose, with BP up 1.6 per cent, Royal Dutch Shell 1.3 per cent and Total 0.7 per cent despite a dip in oil prices. Utilities stocks also gained ground, with E.ON up 1.5 per cent, while Suez gained two per cent as investors cheered the firm's acquisition of a power plant in Brazil.

But gains were limited by falling shares of mining companies, which retreated along with base metal prices and after a sector downgrade by Goldman Sachs. Rio Tinto dropped 2.2 per cent, and Anglo American shed 3.4 per cent.

On the macro front, data showed the US Consumer Price Index jumped by the sharpest increase in more than two years last month. Stripping out food and energy prices, the core CPI advanced the most since January.

"The upside surprise in the November inflation numbers certainly raises concern about the clear inflation pressures that continue to percolate in the US," Charmaine Buskas, senior economics strategist at TD Securities, wrote in a note.

"So with lingering price pressures and GDP expected to slow substantially heading into 2008, the Fed will be caught in a difficult corner. This suggests that any expectations that the market may have for a protracted rate cut cycle may not come to fruition."

The FTSEurofirst 300, up a thin 2.2 per cent this year, closed with a loss of 1.4 per cent on the week, even after the Fed cut US interest rates by another 25 basis points and joined forces with other major central banks to fight the global liquidity squeeze.

Some analysts have raised questions over the impact of the measures announced by the central banks on recently hammered banking shares and equities in general. "It is a deft move and has a chance of working. However, it is not designed to be a panacea. It is a surgical strike aimed at the money markets," State Street Global Markets analysts wrote in a note.

"It seems unlikely it will revive animal spirits across other asset classes. The response of stock markets so far has been like an accelerated version of what happened after the first interest rate cut by the Federal Reserve, a short relief rally followed by a dawning sense that nothing fundamental has changed. Liquidity is the fuel of money markets. Earnings and confidence drive equities."

Around Europe, Germany's DAX index gained 0.3 per cent, Britain's FTSE 100 index rose 0.5 per cent and France's CAC 40 added 0.3 per cent.

Dutch staffing firm USG People surged 6.7 per cent on talk that Adecco could launch a bid for the group. USG said it was not in any takeover talks with rivals.

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