Oil sector buoys European shares

European shares rose yesterday, driven by a rally in energy stocks as the price of crude oil held firm, while gains in the broader markets were tempered by new worries about the banking sector. German utility E.ON was the largest individual positive influence on the broader market, rising 2.8 per cent. Oil majors BP and Total followed closely behind, rising 1.2-1.5 per cent. Crude oil futures fell below $130 after European market hours. Data confirming the US economy grew faster than originally reported in the first quarter dragged the European market out of negative territory as the figures helped soothe concern about the outlook for the world's largest economy.

The FTSEurofirst 300 index of top European shares ended 0.3 per cent higher at 1,330.28 points, having swung earlier between a loss of 0.2 per cent and a gain of 0.8 per cent.

Yet a rise in euro zone government bond yields to their highest level since the onset of the credit crunch in July last year was not supportive for equities, as this mirrored concern in the investment community about the outlook for inflation, rather than the prospect of robust economic growth.

"My opinion is the market is saying the economy is not in great shape, we've got a lot of cost-push inflation from oil and soft commodities and I think if that interpretation is right, then that is pretty bad news for the equity markets," Andrew Lynch, a portfolio manager at Schroders, said.