Euro shares rise as central banks oil money markets

European shares rose to their highest close in two weeks yesterday after the region's three biggest central banks committed to pumping extra liquidity into money markets, lifting financial stocks.

Banks were the top positive influence on the broader European equity market after the central banks of Britain and Switzerland promised extra funds to ease pressure on interbank lending rates, while the European Central Bank said it was ready to step in with extra cash if needed.

HSBC gained 1.1 per cent, while Banco Santander rose 1.7 per cent and HBOS and Natixis gained around three per cent.

Gains were tempered by the technology sector. US group Oracle missed Wall Street expectations on Wednesday, hitting shares in German software group SAP.

SAP fell nearly five per cent after Oracle said its customers had become more cautious, dealing a blow to the idea that software companies would be immune to the turmoil rocking markets.

The FTSEurofirst 300 index of top European shares was up one per cent at 1,271.59 points, a level last seen on March 14.

"The market is still very, very jittery but I think it wants to believe that the central banks can solve the problem," said Andrew Lynch, a portfolio manager at Schroeders.

"We're going to remain very data-dependent, very event-dependent so if we see unemployment really accelerate in the States, if we see consumer confidence in Europe, which has remained remarkably high, start to crack, then I think the market goes down again."

Tighter European credit spreads also added to the positive undertone within the financial sector, even as three-month interbank lending rates for euros and sterling hit their highest levels this year.

The DJ Stoxx bank index was up 1.5 per cent. The index is still down about 35 per cent since reaching a peak last April as financial stocks have come under pressure from write-downs in the banking sector linked to products exposed to the risky US sub-prime mortgage market.

Mining shares rose as copper and other base metal prices rose. Rio Tinto was up 2.1 per cent, while Anglo American and BHP Billiton both gained 1.6 per cent. French mining group Eramet was up 1.6 per cent, after earlier surging more than five per cent. Traders said it was seen as a potential takeover target after bid talks collapsed between Brazil's Vale and Xstrata.

Strong results propelled retailer Hennes & Mauritz, insurer Swiss Life and Austrian bank Raiffeisen.

German property lender Hypo Real Estate soared 14 per cent on relief over its exposure to monoline insurers.

"We are not seeing a dramatic impact on the non-financial sector yet, outside the US, from current woes. If that continues to be the case, then investors will begin to pay for the earnings that they see developing," said John Haynes, strategist at Rensburg Sheppard Investment Management.

"But at the moment everybody is a bit too nervous to trust that the current consensus forecasts are accurate because they fear that they will be coming down shortly as the financial issues spill over into them."

The FTSEurofirst 300 has lost about 15 per cent so far this year and is on track to record its worst quarterly performance since the third quarter of 2002, on concern about the extent of the impact of the credit crisis on the US economy.