Commods lift Europe stocks

European shares ended higher yesterday as commodity and drug stocks gained and economic growth data proved surprisingly strong, offsetting the impact of concerns over more rights issues in the banking sector.

The pan-European FTSEurofirst 300 index ended 0.38 per cent higher at 1,359.86 points, its third day of modest gains out of the four sessions in the week so far, with the undertone bullish due to strong economic growth data from the region.

The index has now gained 1.7 per cent this month, building on a six per cent gain last month, giving investors respite from a sharp slide that started almost a year ago and stemmed from credit market problems.

Roche Holding rose 2.5 per cent and Novartis gained 1.7 per cent on hopes for key cancer drug trials due to be presented at a research meeting at the end of the month. Much of the information will be available from Friday.

BT Group jumped 5.4 per cent after posting strong fourth-quarter results, while Deutsche Postbank rose three per cent to top German gainers on talk of takeover interest from insurer Allianz. Allianz and Postbank's owner Deutsche Post both declined to comment.

Sharp German economic growth and a surge in France produced a healthy showing from Europe when growth estimates for the first three months of the year were published yesterday.

"It looks as if the European Central Bank will stay on hold. Interest rates and bond yields may now be low enough for risk appetite to... put equities under upward pressure," said Bernard McAlinden, strategist at NCB Stockbrokers in Dublin.

"The line of least resistance is upward and I wouldn't be unhappy if, by the end of the year, we had dividend yield plus a small capital gain from equities," he said.

Vivendi, Europe's largest entertainment group, jumped 5.2 per cent after posting a smaller-than-expected drop in first-quarter operating profit late on Wednesday.

Miners and oil stocks tracked copper and crude prices higher.

Anglo American, Rio Tinto and BHP Billiton all gained more than two per cent while BP tacked on 0.6 per cent.

Across Europe, Britain's FTSE 100 gained 0.6 per cent, while Germany's DAX and France's CAC ended flat.

Banks, the sector battered worst by a credit market crisis that forced them to take big write-downs and raise capital, were mixed.

Barclays fell 2.2 per cent after the British bank took a new write-down and refused to rule out a rights issue in the future, though it held off bolstering equity immediately.

Barclays' asset write-down was smaller than those of some rivals, but its capital cushion remains thin compared with other European banks, especially after Royal Bank of Scotland and HBOS unveiled big rights issues.

"The real crux of the market's interest remains the group's capital position. Today's statement does little to assuage any concerns regarding the likelihood of a rights issue, with the company insisting on keeping the door ajar," said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers.

Shares in Credit Agricole fell 1.3 per cent after France's biggest retail bank confirmed a €5.9 billion rights issue and said it would sell assets and restructure its Calyon investment banking arm.

Belgian banking and insurance group KBC fell six per cent after posting a fall in earnings and temporarily suspending its share buyback programme.

But French peer Natixis soared 17 per cent after it avoided making a loss in the first quarter.