Europe shares end higher

European shares closed 1.8 per cent up yesterday as Vodafone led the telecom sector higher, while a rebound in US housing data improved market sentiment.

The FTSEurofirst 300 index of top European shares closed 14.33 points higher at 791.61 after having been down as much as 0.9 per cent. It fell 2.4 per cent in the previous session and had lost 45 per cent last year.

Data showed that pending sales of existing US homes rose in December for the first time since August, boosting markets in the United States and Europe.

"It's good to see positive news flow from the US housing markets. This is encouraging as markets seem to react again to good news," said Philippe Gijsels, strategist at Fortis Bank in Brussels.

"Although on the corporate side news are set to remain bad and we're still in a bear market, this is a glimmer of hope," Mr Gijsels added.

Telecoms were the biggest sectoral gainers, as Vodafone, the world's largest mobile phone group by sales, rose seven per cent after the company hiked its full-year guidance and beat its own third-quarter revenue forecast.

Deutsche Telekom, France Telecom and Telecom Italia were up between 4.2-7.3 per cent. Across Europe, the FTSE 100 index was up 2.1 per cent, Germany's DAX was up 2.4 per cent and France's CAC 40 gained 1.8 per cent.

European shares had slipped by late morning, with BP's weaker-than-expected results dragging down the energy sector, while banks fell after recent gains as concerns about their balance sheets persisted.

BP fell 3.7 per cent after the company said replacement cost net profit fell 24 per cent in the fourth quarter to $2.587 billion, missing forecasts amid a collapse in crude prices and as its Russian unit reported a big loss.

Other energy shares also declined, with Royal Dutch Shell, gas producer BG Group, Tullow Oil and Total falling 1.2-2.4 per cent.

"BP's disappointing numbers have weighed heavily on the market, and this negative sentiment has opened the doors for money to be taken out of the banking sector," said Chris Hossain, senior sales manager at ODL Securities.

"It would appear that any strength is fragile, with the markets needing no excuse to pull back. The fear amongst investors is that if we crash through the October lows, we could be facing freefall, with no obvious signs of resistance." Banks were among the biggest decliners on the index, with Barclays falling 4.5 per cent, BNP Paribas slipping 3.7 per cent, Société Générale dropping 2.7 per cent and Lloyds down 3.4 per cent.

The Bank of Japan's plan to buy up to $11 billion of shares held by banks also failed to cheer. The market focused on the US Senate, which was due to begin a series of votes on $900 billion in tax cuts and new spending that President Barack Obama says will help fight the worst economic crisis since the Great Depression.

With the United States, Japan, Britain and mainland Europe all officially in recession, latest data painted a picture of a painful global downturn still in full swing.

German retail sales unexpectedly fell for a third consecutive month in December, suggesting private consumption probably did little to temper one of the worst quarters in recent history for Europe's largest economy.

"Any top-down (economic) number which we have seen effectively points to a worsening of the economic situation as opposed to a bottoming out or improvement," said Heino Ruland, strategist at FranfurtFinanza.