Oil relief, weaker euro lift stocks

European shares ended higher yesterday as falling oil prices supported the broader market, a weaker euro underpinned automotive stocks and solid results from Wells Fargo lifted battered banks.

The FTSEurofirst 300 index of top European shares closed 0.5 per cent higher at 1,115.97 points, having fallen as much as 1.6 per cent earlier in the session.

A $5 drop in crude on the back of a surprise increase in US inventories lifted airline stocks, with Air France-KLM rallying 7.8 per cent, Lufthansa up 4.8 per cent and British Airways up 6.9 per cent.

Automotive stocks soared as the US dollar strengthened against the euro after Federal Reserve Chairman Ben Bernanke told a US House of Representatives panel that currency intervention may be warranted under certain conditions.

BMW was up two per cent, Renault rose 7.4 per cent and Peugeot added 4.6 per cent.

Banks, the heaviest drag on the European market earlier in the day, ended higher after Wells Fargo reported unexpectedly strong quarterly results.

The DJStoxx European banks index rose 1.6 per cent, with Barclays adding 2.4 per cent and Fortis gaining 4.6 per cent, and UBS rising 3.4 per cent.

Alpha Trading asset manager Stefan de Schutter doubted the longevity of the turnaround witnessed in late trade.

"We were oversold earlier and this is a technical rally. The comments from Bernanke were a big push but in the end nothing has really changed," he said.

Andreas Huerkamp, a strategist at Commerzbank in Frankfurt, said there are some signs that the current downtrend is coming to the end.