European stocks end week higher as banks rally

European shares ended sharply higher yesterday after better-than-expected earnings from US bank Citigroup spurred a rally in financial stocks.

The FTSEurofirst 300 index of top European shares closed 1.56 per cent higher at 1,164.19 points, having fluctuated between 1,133.28 and 1,163.71 during the day.

The index gained around 3.2 per cent during the week, but has lost about 23 per cent so far this year.

Citigroup, the largest US bank, posted a smaller-than-expected $2.5 billion loss, sending the DJStoxx European banks index 4.9 per cent higher.

UBS jumped 7.6 per cent and Royal Bank of Scotland soared 9.6 per cent. "Citigroup created a huge amount of positive excitement for the very reason that (the results) are not as bad as expected and the markets gave them the benefit of the doubt," said Howard Wheeldon, senior strategist at BGC Partners.

The oil price holding around $130 a barrel and banks gaining ground for the third consecutive trading day after a string of better-than-expected earnings raised hopes that the worst of the credit crunch may be over.

"I think we are well into the second half of this bear market but there are still plenty of shocks to come," BGC Partner's Mr Wheeldon added.

After banks, pharmaceuticals were prominent gainers yesterday following the announcement of a $7.5 billion acquisition of generic drug-maker Barr by Teva Pharmaceutical Industries. The deal implies a 42 per cent premium to Barr's closing price on Wednesday and prompted market watchers to wonder whether pharma stocks are undervalued.

Stada rose 2.5 per cent, Roche added 1.6 per cent and Sanofi-Aventis gained 2.1 per cent.

Earnings in Europe were largely confined to the Nordic countries, with Swedish Match adding 5.5 per cent after the tobacco products maker released a solid set of second-quarter results.

SBM Offshore clocked up 7.5 per cent as the Dutch maritime engineering group got two orders worth a combined $230 million and could get a bigger contract in 2009, according to analysts.

Spain's Union Fenosa surged 10.4 per cent, following Thursday's 16 per cent advance, after core shareholder ACS confirmed there are several interested buyers for its 45.3 per cent stake.

A profit warning from Belgian supermarket chain Delhaize dented food retailers and producers.

Delhaize lost 8.2 per cent, while peers Ahold and Carrefour were down 3.5 per cent and 0.2 per cent respectively and Tesco fell 3.3 per cent.

L'Oreal fell 2.07 per cent after issuing a warning on sales. Nestlé, a large shareholder in L'Oreal, fell 2.8 per cent. Other notable fallers included Swedish engineering group Sandvik, which lost 2.6 per cent as its second-quarter pre-tax profit and order intake missed expectations.

Miners also weighed on the market as metal prices eased. Anglo-American was down 1.1 per cent, Rio Tinto ended 1.3 per cent lower and BHP Billiton lost 1.8 per cent.