Nokia, banks lead rally in European stock markets

European stocks rose yesterday, led by Nokia, after a top executive said the mobile phone maker had not felt much of an impact from the US economic slowdown, and with banks' strong tracking Wall Street.

The FTSEurofirst 300 index of top European shares closed 3.2 per cent higher at 1,266.03 points, narrowing its losses so far this year to 16 per cent.

Nokia advanced 8.2 per cent after Chief Financial Officer Rick Simonson was quoted as having told Bloomberg Television that the company had not felt much of an impact from the US downturn.

Chipmaker Infineon, for which Nokia is an important customer, rose 10.5 per cent.

The DJ Stoxx technology index was the best sectoral performer with a rise of 6.4 per cent as Nokia's leap late in the session gave a boost that helped offset an earlier Morgan Stanley downgrade of the sector to "underweight" from "neutral".

Financials held centre stage for most of the day in the wake of solid gains in US stocks on Monday after investment bank JPMorgan raised its offer for rival Bear Stearns to $10 a share from $2 in a deal backed by the Federal Reserve.

In Europe, HBOS rose almost 15 per cent, Royal Bank of Scotland added over nine per cent and UBS climbed more than eight per cent.

"We are catching up with yesterday's gains in the United States, that's why Europe is strong today," a trader said. "(European) banks are up because of the Bear Stearns deal."

"The upswing for the banks does not necessarily signal a return of confidence but the increased offer (for Bear Stearns) has reduced the perceived risk of collapse in the financial sector," the trader, based in Scandinavia, said.

Another trader attributed much of yesterday's gains, especially in bank shares, to short-covering. "It's not your average pension fund loading up," this trader said.

The DJ Stoxx European banks index rose 4.7 per cent, trimming its year-to-date losses to some 18 per cent after a similar fall during 2007, driven by massive writedowns at top banks sparked by the US subprime mortgage crisis.

Financial industry worries have spread to the wider economy, especially in the US, pushing down the dollar and denting earnings growth prospects also for European companies.

US data showed consumer confidence at a five-year low this month on worries over rising inflation and fewer jobs, with a record drop in home values in January providing additional cause for their woes.

In Europe, strategists and traders said yesterday's advance, coming after a four-day Easter break, might prove short-lived.

"The worry is still out there that this rally may prove to be nothing but yet another false dawn," IG Index said.

"This year's decline has been punctuated by strong rallies along the way which have ultimately proved to be 'dead cat bounces' which ran out of steam," it said in a market comment.