European shares end higher as banks recover from earlier falls

European shares closed higher yesterday in choppy trade with the banking sector recovering after earlier falls and energy stocks rising as crude bounced from three-and-a-half-year lows.

The FTSEurofirst 300 index of top European shares was up 1.9 per cent at 825.31 at close in a volatile session having been down as much as 792.43 points and up as high as 827.55 points.

"We may have touched a bottom at the end of November and we are starting to see a year end rally though it is going to be a fairly shallow one. The market is extremely volatile at the moment," said Franz Wenzel, strategist at Axa Investment Management.

"The anticipation that the ECB is going to cut interest rates by around 75 or even 100 basis points tomorrow is also giving a boost to the market. Though the roller coaster ride should continue for some time," said Mr Wenzel.

Across Europe, the FTSE 100 index was up 1.4 per cent, Germany's DAX was 3.1 per cent higher and France's CAC 40 was up 2.35 per cent.

Energy stocks gained the most points on the index. BP, Royal Dutch Shell and Total rose 2.6-2.9 per cent.

Crude bounced after falling to a fresh three-and-a-half-year low on Monday, following Opec's weekend decision to defer any further output cut until mid-December. But, it slipped towards the end of stock market trade and was down $1 at around $48.35 a barrel.

Banks also contributed to sizable gains on the index, although stocks within the sector were mixed.

Royal Bank of Scotland soared 16.8 per cent ahead of a re-weighting of the stock in both the FTSE 100 index and the MSCI Europe after the close yesterday.

Merrill Lynch also restarted RBS with a "buy" rating and said it should have time to implement a strategic overhaul.

Banco Santander, UBS and Nordea Bank were up 3.6-9.3 per cent, while HSBC, Barclays and Société Générale were down 1.4-3.4 per cent.

Analysts said that European banks will need to raise much more capital if there was a repeat of the extreme economic downturns of the past, as recent cash calls largely replenished a "woefully under-capitalised" sector.

Automobiles also performed well with French auto stocks rebounding after US manufacturer Ford announces it expects to reach breakeven or profitability in 2011.

Renault and Peugeot were up 9.4 and 9.6 per cent respectively.

Miners were under pressure. Aluminium touched a new three-and-a-half-year low and lead fell 4.3 per cent ahead of US car sales data that is expected to show another grim picture of slowing demand.

Copper was down 1.6 per cent.

Anglo American, BHP Billiton, Rio Tinto and Xstrata were 1.5-10.9 per cent lower.

But Tesco, Britain's biggest retailer was up 13 per cent after it said its new budget range was luring an extra 300,000 UK shoppers a week and it was on track to meet profit forecasts, boosting its shares on hopes it can cope in a consumer downturn.

Deutsche Telekom gained 6.3 per cent after two people familiar with the matter said chief financial officer Karl-Gerhard Eick will resign from his post and leave the company.