Auto stocks backed by firmer dollar drive European shares higher

European shares were up at midday yesterday, boosted by a rally in automotive stocks such as Daimler and BMW, which benefited from a firmer dollar, while pharmaceuticals also lent support.

By 1111 GMT, the pan-European FTSEurofirst 300 index was up 0.5 per cent at 1,195.39 points, having hit a session high of 1,196.87.

Carmakers rose as the dollar rallied, hitting a five-month high against the euro after the European Central Bank's caution on its growth outlook shifted the focus of economic concerns from the US to the rest of the world.

"A firmer dollar boost sales opportunities for European car makers in the United States," one trader said.

The DJ Stoxx European car sector index jumped 2.8 per cent, with shares in Daimler up 4.2 per cent, BMW rising 5.7 per cent, Porsche gaining 3.7 per cent and Renault adding 3.6 per cent.

"Just as a weaker dollar kept us busy with its a negative effects, it now seems that we have a counter-balance to the negative news flow," said Michael Koehler, equity strategist at German bank LBBW in Stuttgart.

A firmer dollar as well as a weaker oil price have helped the recent recovery, Mr Koehler said.

The pan-European index was on course to finish the week with a near-three per cent gain.

Oil majors such as BP, Royal Dutch Shell and Total were down one to 1.6 per cent each as US light crude fell below $118 a barrel.

Weaker mining stocks, falling in line with lower metal prices, added to declines. Kazakhmys and Antofagasta fell more than three per cent. Around Europe, Britain's FTSE 100 index was flat and Germany's DAX index rose 0.2 per cent.

France's CAC 40 was the strongest performer out of the three leading European indices, rising 0.6 per cent, lifted by gains in Sanofi-Aventis, which also added 0.5 points to the gains in the FTSEurofirst 300.

Sanofi-Aventis rose 4.1 per cent after US regulators granted priority review for its experimental heart drug Multaq, while Novartis was up 1.6 per cent and Roche rose 1.1 per cent.

Some analysts see Sanofi's Multaq as a potential $2 billion-a-year seller.

Banks were mixed after Royal Bank of Scotland kept the sector's woes firmly in the spotlight, but its own results were not as bad as expected.

A 5.9 billion writedown on risky assets sent Britain's second-biggest bank to a first-half loss of £691 million, - less than feared, but still one of the biggest losses in British corporate history.

"It's all a matter of expectations," LBBW's Koehler said.

"At the moment, markets reward results that meet or only slightly miss estimates with rising share prices," he added.

RBS shares rose 2.8 per cent, HSBC rose 1.6 per cent, while BNP Paribas fell 0.5 per cent and Credit Agricole fell 1.1 per cent.