European shares close up, tracking Wall Street rally

European stocks closed up yesterday, spurred by a rebound in banks and tracking a rally on Wall Street as retreating oil prices and US data eased inflation concerns.

The FTSEurofirst 300 index of top European shares ended 0.5 per cent higher at 1,267.36 points, reversing early losses and way off the day's low of 1,247.54 points.

But the index fell on six of the last eight sessions and ended the week with a 1.3 per cent loss. It is down five per cent in June.

"At one stage earlier in the week it really did feel that the market was out of control," said Mike Lenhoff, chief strategist at Brewin Dolphin. "We could see a decent rebound looking into next week."

Swiss lender UBS was one of the major positive weights for the index. It rose 5.2 per cent after saying it had completed a 16 billion franc (€10 billion) rights issue and that subscription rights were exercised for 99.4 per cent of all new shares issued.

Commerzbank added 5.9 per cent and Dresdner Bank rose 4.1 per cent after a source from Commerzbank's supervisory board said the two banks are in advanced talks about a merger.

HBOS surged 13.7 per cent. Britain's financial watchdog brought in tougher disclosure requirements for investors taking short positions in companies during a rights issue, easing the threat of aggressive selling of HBOS stock next month.

Royal Bank of Scotland added 3.2 per cent after boosting its finances with the sale of UK leasing firm Angel Trains to a fund managed by Australia's Babcock & Brown for $7 billion, including debt.

Wall Street indexes jumped between one and 1.7 per cent as inflation concerns eased after a US report showed May's consumer prices, excluding food and energy, rose according to economists' expectations.

"Without a good lead from Wall Street, these markets won't go anywhere," Brewin Dolphin's Mr Lenhoff said.

Around Europe, Germany's DAX index gained 0.8 per cent, while Britain's FTSE 100 and France's CAC 40 both put on 0.2 per cent.

A fall in crude prices towards $135 a barrel alleviated inflation concerns in the wider market, but bit into heavyweight oil shares.

Total and Royal Dutch Shell both shed about one per cent.

BP dropped 1.5 per cent, also under pressure after four Russian billionaire partners in its troubled Russian joint venture threatened to sue the British group after it rejected their demand for more boardroom clout.

Telecoms service stocks were standout gainers on the back of a bullish note from Goldman Sachs, which reiterated its "attractive" stance on the industry and named Vodafone one of its "Best Buy" ideas. Vodafone rose 2.4 per cent.

Michelin and Peugeot rose seven and four per cent respectively after Goldman added the stocks to its "Conviction Buy List".

EDF fell 5.2 per cent after a source close to the matter said it could slightly raise its bid for British Energy above 700 pence a share. British Energy lost 0.9 per cent.