European shares rally for fourth day

European shares closed higher yesterday, the fourth day of gains, boosted by oils and drug companies and a late recovery for banks, though Barclays tumbled after selling a stake to Middle East investors.

The FTSEurofirst 300 index of leading European companies closed 2.8 per cent higher at 928.81 points.

The index rose 11.9 per cent over the week, but fell 12.7 per cent in October, its worst fall since September 2002, as a credit crisis and the resulting economic slowdown weighed heavily on investors' minds.

"The general consensus is that it's a dead cat bounce. But it's too early to say. There's a lot of positive signals coming from any kind of valuation-based approach," said Gareth Williams, European equity strategist at ING.

"But there are negative signals from the economy. The market may have to test the lows again before investors believe in the rally. The US election next week may be a catalyst for better sentiment." He added: "Profit warnings and dividend cuts are not helping."

Drugmakers were in demand for their defensive quality, with GlaxoSmithKline adding 4.4 percent, Roche jumping 9.6 per cent, Novartis putting on five per cent and Shire rising 4.5 per cent.

Williams expects rate cuts in the UK and Europe next week, but says they are priced in.

Oils bounced from yesterday's losses, despite a 2.7 per cent decline in the crude price to $64.22 a barrel. Total, BP and Royal Dutch Shell rose between 2.5 and 4.2 per cent.

Banks rallied late in the day although Barclays was 12.8 per cent lower after the British bank said it was receiving $12.1 billion from investors from Qatar, Abu Dhabi and elsewhere to avoid taking UK government rescue cash.

The shares initially rose, but analysts said there was concern it was more costly than cash on offer from the UK government's bailout plan.

HSBC sank 4.3 per cent after a Goldman Sachs downgrade.

Germany's Commerzbank lost 6.2 per cent after sources familiar with the situation said Germany may take a stake in the country's second-biggest bank, which is grappling with the fallout from the global financial crisis.

Anglo Irish and Bank of Ireland rose 23.1 and 40 per cent respectively on bargain hunting after recent weakness, while Banco Santander gained 5.4 per cent and Credit Agricole jumped 8.9 per cent. Across Europe, Britain's FTSE 100, France's CAC-40 rose and Germany's DAX rose between two and 2.4 per cent.