European shares benefit from oil but end off highs

European shares rose yesterday, fed by a rally in energy stocks as crude oil hit new record highs, although banks coming under pressure and US consumer sentiment data knocked the market back from session peaks.

Crude oil futures hitting a high just shy of $128 a barrel drove up the oil and gas sector in Europe, pushing up shares in Total, BP and Royal Dutch Shell by 1.5 to 2.5 per cent, making them the three largest positive influences on the broader market.

Shares in the UK's biggest electricity producer, British Energy, rose 5.2 per cent after the company said it had received early stage takeover proposals.

Pharmaceuticals put on a strong performance, with France's Sanofi-Aventis rising 2.2 per cent after investors welcomed positive clinical trial results for its heart drug Multaq.

A decline in bank stocks took some of the lustre off the index, particularly as US stocks slipped into the red.

The FTSEurofirst 300 index of top European shares rose 0.4 per cent to 1,365.2 points, after earlier rising by as much as 1.2 per cent to four-month highs. Data showing US consumer confidence data hit its worst level in nearly 28 years stripped the market of many of the day's gains.

But the index still gained 1.5 per cent this week, helped by fairly robust earnings as well as US data that showed inflation moderating and consumer spending holding up.

"In general terms, the data specifically coming out of the US has certainly been supportive, despite the fact that we had disappointing consumer confidence numbers today," said Barclays Stockbrokers strategist Henk Potts.

"There is also relief that the corporate data hasn't really been as bad as people feared, so the combination of those two concepts has added to investor confidence over the last couple of weeks."

British Airways rose by as much as 7.8 per cent after announcing its first dividend since 2001 and posting a 45 per cent rise in annual profits. Its stock ended up four per cent, while German rival Lufthansa rose two per cent.

The FTSEurofirst is on course for a 1.9 per cent gain in May, after rising six per cent in April and recovering 14 per cent since hitting two-and-a-half-year lows in mid-March.

"It looks as if a recovery is setting in - emerging markets are strong, Europe is strong and after the huge amount of worry and panic, it's not as bad as people thought it would be," said Mark Bon, a fund manager at Canada Life.

"The flight to defensives and large caps and the sell-off in emerging markets might all be overdone."

Britain's FTSE rose 0.8 per cent, Germany's DAX rose 1.1 per cent and France's CAC gained 0.4 per cent.

Banks were the worst drag on the European market. Royal Bank of Scotland lost 3.4 per cent, while UBS fell 1.7 per cent, Barclays shed two per cent and BNP Paribas lost 0.8 per cent.

Banks accounted for a net 1.2 points worth of decline in the FTSEurofirst 300, compared with the positive contribution of a net 3.3 points from the oil and gas sector.

Shares in the London Stock Exchange rose 5.1 per cent to rank among top percentage gainers on the FTSE 100 on market talk of bid interest after Sanford Bernstein said a fall in the exchange's share price had made the British bourse an affordable target for rivals Nasdaq and NYSE Euronext.

Technology stocks were stronger, tracking their US peers, which rose on a battle to control Yahoo. Nokia and Siemens rose 1.8 to 2.3 per cent.

The FTSEurofirst has lost 10 per cent so far this year, punctured by banks' multi-billion dollar write-downs as a result of the credit market crisis, but analysts say a turning point could be at hand.

"We're unlikely to get to last year's highs, but we should make some money this year," said Canada Life's Bon.