Banks power European stocks to biggest monthly rise

European equities ended higher yesterday, with a key benchmark posting its biggest-ever monthly gain, driven by stronger-than-expected company earnings and on optimism that the market was bottoming out.

Investors shrugged off the World Health Organisation's warning that a swine flu pandemic was imminent, and analysts said that the health crisis might pass without having any significant impact on the economy.

Pharmaceutical stocks gained on hopes that the demand for medicines and vaccines would rise. The new H1N1 strain is spreading around the world and 12 countries have so far reported cases of the flu, which has killed up to 176 people in Mexico.

The FTSEurofirst 300 index of top European shares closed 1.5 per cent higher at 828.62 points after hitting its highest since mid-January. The index, which fell 45 per cent last year, rose 13 per cent in April, its biggest ever monthly rise.

Banks added the most points to the index, with Barclays surging 9.8 per cent, Royal Bank of Scotland climbing 13.6 per cent, Societe Generale up 7.9 per cent, AXA jumping 10 per cent and Lloyds rising 8.2 per cent.

Across Europe, the FTSE 100 index, Germany's DAX and France's CAC 40 rose 1.3-1.4 per cent.

"The market is gradually becoming more confident with the idea that we are pretty close to the trough," said Andrew Bell, head of research at Rensburg Sheppards.

"The feeling is that you have gone through a period of the economy shrinking at six to seven per cent and now you might enter into a period when it is shrinking at a smaller rate, or even in three to six months starting to stagnate, or even a bit better."

Investors were reassured by comments from the US Federal Reserve, which said the economic outlook had improved modestly since its last meeting in March. US GDP data, although grim, showed consumer spending rose, while the number of workers filing new claims for jobless aid unexpectedly fell last week.

Drugmakers were among top gainers, with GlaxoSmithKline rising one per cent, Novartis up 1.6 per cent and Sanofi-Aventis rising 0.9 per cent. AstraZeneca beat expectations with a 40 percent rise in first-quarter pretax profit, bolstered by higher revenues from heart drugs Toprol XL and Crestor. But its shares closed 2.4 per cent lower after rising earlier in the session.

BASF, the world's largest chemical maker, jumped more than seven per cent after its first-quarter operating profit beat forecasts, as a good start to the growing season in Europe and the United States boosted its pesticides business.