European stocks surged 2.4 per cent yesterday to their highest close in 10 days, driven by banks that jumped after Citigroup's update underscored hopes that the end of the global credit crisis was in sight. The FTSEurofirst 300 index of top European shares ended 2.4 per cent higher at 1,325.90 points, its highest close since April 7 and its biggest one-day gain since April 1.

The index has risen five per cent in April, putting it on track for its best month since October 2003.

Among other banks, UBS rose 5.4 per cent, Santander 3.2 per cent and Societe Generale 5.9 per cent.

Citigroup posted a $5.1 billion quarterly loss and unveiled plans to axe 9,000 more jobs, but investors cheered chief executive officer Vikram Pandit's moves to get past credit market problems and cut costs, and the shares rose 7.6 per cent in New York.

It follows similar share price rises for Merrill Lynch and JPMorgan this week after investors shrugged off large write-downs and focused on signs of better days ahead.

"Good news for Citi and Merrill and everybody in financials that's had a well-known exposure to subprime - this is the quarter they get to clear the decks," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.

Banks have been the biggest losers in a sell-off stemming from credit market problems linked to a collapse in risky, or subprime, US mortgages and investors say some of the beaten-down stocks may now be good value.

Royal Bank of Scotland put on 4.9 per cent despite a source saying it was set to launch a rights issue next week that analysts estimate could raise $20 billion.

"We are moving into a phase now where the banks are identifying the quantum of the losses," said Justin Urquhart Stewart, investment director at Seven Investment Management.

"The reason Royal Bank of Scotland will be looking to increase their cushion of support is they know they can only come to the well once to draw water. If banks can draw a line under this, then you're okay," he said.

Pharmaceuticals also rose, with Novartis up 3.3 per cent after a Morgan Stanley upgrade, while Roche gained 3.7 per cent, bouncing back from recent weakness.

Commodity stocks were mixed, with miners falling and oil stocks tracking a jump in crude.

Kazakh miner Kazakhmys fell 6.4 per cent and peer Eurasian lost 4.5 per cent as a senior government official said Kazakhstan may impose a metals export duty to raise budget revenue.

Vedanta slipped 2.2 per cent and Anglo American fell 1.8 per cent.

But a jump in crude to a record $116.29 a barrel lifted index heavyweight BP by one per cent and Total 1.5 per cent.

Around Europe, Germany's DAX index was up 2.4 per cent, the UK's FTSE 100 index gained 1.3 per cent and France's CAC 40 advanced 2.1 per cent.

Despite yesterday's rally, analysts said risks remain for stocks because the US economic downturn will prompt companies to lower their outlooks.

"Profit warnings in non-financial sectors are not yet integrated in the market. And that is why there are such sharp corrections like Nokia yesterday," said Arthur van Slooten, strategist at Societe Generale in Paris.

"When profit warnings kick in, industrial stocks could react much more negatively than financials when they report bad results and write-downs. Just look at General Electric and Nokia."

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