Banks, oils lift Europe shares to higher close

European shares closed higher in thin trading yesterday, led by banks and with energy stocks gaining as the conflict between Israel and Hamas bolstered crude prices.

The FTSEurofirst 300 index of top European shares ended 0.8 per cent higher at 810.37 points, as 2008 trade draws to a close this week. The index has tumbled 46 per cent this year in the jaws of a credit crisis that is dragging major economies around the world into recession.

"It has been a most unrewarding year in every possible respect. It's provided nothing but consternation," said Mike Lenhoff, chief strategist at Brewin Dolphin in London.

"(But) we will see a recovery in time. It may be a deeper recession this time round, but policy makers are responding with much more verve than ever before."

Among oil and gas companies, BP, Royal Dutch Shell, gas producer BG Group and Tullow Oil added between 3.2 and 3.8 per cent.

Oil rose towards $38 a barrel as European stocks closed for the day. Crude prices earlier jumped above $40 in response to a weak dollar and Israeli attacks on Hamas that served as a reminder of tensions that could threaten Middle East crude oil supplies.

"The Gaza conflict is boosting oil prices in the short-term but unless the crisis deepens, this trend can quickly be reversed," said Joerg Rahn, senior economist at MM Warburg.

Miners also gained, helped by firmer metals prices. Lonmin, Vedanta Resources, Anglo American and Kazakhmys rose between 5.6 and 10.7 per cent.

Among banks, Deutsche Bank added 5.7 per cent, UBS rose 3.1 per cent and HSBC added 1.6 per cent.

Royal Bank of Scotland gained 14 per cent. The bank said on Sunday it was pursuing a disposal of its insurance operations despite a newspaper report which said the government-controlled bank was preparing to abandon the plan.

Across Europe, the FTSE 100 index added 2.4 per cent, Germany's DAX gained 1.6 per cent and France's CAC 40 rose 0.5 per cent.

The defensive pharmaceutical sector also rose, with AstraZeneca rising 4.8 per cent, Shire adding 2.1 per cent and GlaxoSmithKline rising 0.6 per cent.

Novartis AG was up 1.2 per cent. The Swiss drugmaker said it will license a programme of vaccines from US group AlphaVax against cytomegalovirus (CMV) infections, which can cause disability in newborn babies.