European shares close higher

European shares closed higher yesterday, with gains for banks, including Barclays, outweighing losses for defensives such as telecoms.

The FTSEurofirst 300 index of top European shares rose 0.5 per cent to 839.94 points, having been up as much as one per cent earlier in the session.

Over the week, the index fell three per cent, but is up 30.1 per cent from the lifetime low it hit on March 9.

British bank Barclays closed 5.8 per cent higher after saying it was in talks to sell its prized asset management arm, Barclays Global Investors (BGI). The deal could be worth up to to $10 billion, said sources.

Transformed financial group Fortis rose 12 per cent after reporting a first-quarter net profit despite a negative impact on its investment portfolio, and saying inflows held up in April and early May.

Governments and central banks worldwide are taking action to combat recession, and investors are becoming more confident they will be successful.

Data from the United States yesterday gave some further cause for optimism. US consumer confidence rose in early May to its strongest since the September failure of Lehman Brothers. The Reuters/University of Michigan Surveys of Consumers said its preliminary index rose to 67.9 from 65.1 in April, above economists' median expectation of a reading of 67.0, according to a Reuters poll. And industrial production fell 0.5 per cent in April, down for the sixth consecutive month but at a more modest pace than in recent months. Economists polled by Reuters had expected a drop of 0.6 per cent in April. The figures provided more evidence that the pace of recession may be easing after back-to-back quarters of sharp contractions in gross domestic product.

But analysts are sceptical about when, and how strongly, an economic recovery will materialise.

"We've had a spectacular rally," said Philip Lawlor, chief portfolio strategist at Nomura. "Risk appetite has rebuilt. The question is about more green shoots."

"I don't think the data is actually going to turn positive for another six or nine months."

Referring to data such as industrial production, he said: "It's a second derivative game at the moment - down but not as much as before, which makes it difficult to fathom."

Wall Street was higher around the time European bourses were closing. The Dow Jones, S&P 500 and Nasdaq Composite were up between 0.1 and 0.7 per cent.

Other banks to gain included Italy's Intesa Sanpaolo, up 7.4 per cent after Cheuvreux upgraded it to "outperform" from "underperform", while both Credit Suisse and Exane BNP Paribas raised their target prices, following first-quarter results on Thursday.

Deutsche Bank and Société Générale ended 3.7 and 2.6 per cent higher respectively.

Despite a dip earlier this week, the DJ Stoxx banks index is up more than 96 percent from the March 9 trough.

However, it was not all one-way traffic in the banking sector. Belgian bank KBC finished 12.5 per cent lower, extending this week's heavy falls. Citigroup and other brokers cut its target price on yesterday, following Thursday's first-quarter losses.

Vodafone a relatively strong performer in recent days, fell 2.3 per cent, ahead of results on Tuesday.

But Belgium's dominant telecom operator, Belgacom, rose seven per cent even after reporting a bigger-than-expected five per cent drop in core profit.

European macro data was gloomy. Gross domestic product (GDP) both in the 16-country eurozone and the broader 27-country European Union fell 2.5 per cent in January-March versus the last quarter of 2008.

GDP in Germany, Europe's biggest economy, fell 3.8 per cent, more than in any quarter since reunification in 1990.

Across Europe, Britain's FTSE 100 fell 0.3 per cent, Germany's DAX fell 0.02 per cent and France's CAC-40 rose 0.4 per cent.