Banks, commodities up as European stocks close higher

European shares closed higher yesterday with banks and commodities taking the lead, but gains were capped as investors fretted about the implications of a US plan to pump $1 trillion into the economy.

The pan-European FTSEurofirst 300 index of top shares provisionally closed up 0.6 per cent at 715.17 points, well away from the day's high of 730.22 points.

Across Europe, the FTSE 100 index was up 0.3 per cent, Germany's DAX was 1.2 per cent higher and France's CAC 40 was up 0.6 per cent.

"The initial euphoria surrounding the bond purchase scheme does appear to have worn off a bit. The US is lower which is dragging Europe down," said Peter Dixon, strategist at Commerzbank.

"My view has been why in the short term would a scheme that basically supports the bond market be supportive for equities. If you are looking for capital gains in the short term you are probably better off holding fixed income rather than equities," he said.

Financials were the major gainers. Barclays gained 17.2 per cent, while HSBC, Standard Chartered, UBS, UniCredit and Credit Suisse were 2.6-6.8 per cent higher.

The US Federal Reserve on Wednesday stunned markets by announcing it would pump another $1 trillion into the ailing US economy by buying long-term government debt and by expanding its purchases of mortgage bonds. "This is a big step, but bottoming out is a process - it's way too early to say this is the turning point," said Philippe Gijsels, strategist at Fortis in Brussels.

British insurer Prudential soared 13.4 per cent after the group beat forecasts by reporting a 17 per cent rise in annual profit, driving its share price higher despite it announcing the departure of chief executive officer Mark Tucker.

Nonlife-insurers were also higher following the Fed announcement. Allianz, Axa and Zurich Financial were up 6.3-12.6 per cent.

Energy stocks jumped as crude rose nearly seven per cent. BG Group, BP, Tullow Oil and Total were up 0.2-2.3 per cent.

Miners were higher as copper ticked up 3.4 per cent. Anglo American, Antofagasta, BHP Billiton, Eurasian Natural Resources Corporation, Rio Tinto and Xstrata were up 7.1-13.7 per cent.

Drugmakers were in the doldrums as investors sold out of defensives into more cyclical sectors. GlaxoSmithKline, Sanofi-Aventis, Novartis and AstraZeneca fell 3.1-5 per cent.

The defensive telecommunications sector was also lower. Vodafone Group, DT Telekom and Immarsat were down 2.5-2.6 per cent.

Celesio fell 7.7 per cent after Commerzbank and Goldman Sachs analysts said they see a slowdown ahead for the pharmaceutical wholesaler, with sales not picking up until after mid 2009.