European stocks close up 1.2 per cent

European shares closed higher yesterday, with banks leading the movers, while energy stocks were given a boost by surging crude prices and miners rose as copper producer Antofagasta said expansion plans are on track.

The pan-European FTSEurofirst 300 index of top shares closed up 1.2 per cent at 879.98 points after choppy trade between 889.75 and 870.37 points earlier in the session.

The benchmark index has gained around 36 per cent since its lifetime low on March 9 as investors have become more confident on the prospects for economic recovery.

"It has been a good day, but I am not entirely sure if there is entirely any real justification behind it. There is no real news that has really caused anything to change - we all know that the US banks have been trying to pay back taxpayers funds," said Peter Dixon, economist at Commerzbank.

"I think the market is going up in advance of a recovery. I am not sure if this is sustainable," he said.

Banks added the most points to the index. HSBC, Banco Santander, UBS, Credit Suisse and BNP Paribas were up one to 4.8 per cent.

On Tuesday, the US Treasury said that 10 of the nation's biggest banks were approved to pay back $68 billion in taxpayer funds under the Troubled Asset Relief Program (TARP).

The banks will be free from restrictions on executive compensation, dividend payments and share purchases once they buy back their preferred shares from the US government.

"The news about TARP is certainly one main reason why we're seeing strong gains here (in Europe), as this suggests the sector returns to stability," said Carsten Klude, strategist at M.M. Warburg in Germany.

Across Europe, the FTSE 100 index was up 0.7 per cent, Germany's DAX gained 1.1 per cent and France's CAC 40 was 0.6 per cent higher.

Energy stocks rose as oil topped $71 a barrel for the first time in seven months with Premier Oil, BP, Royal Dutch Shell and Total up 0.6 to 3.3 per cent.

Miners were also higher. Chilean copper miner Antofagasta gained 4.6 per cent after the group said it is on track with expansion plans under which output will jump 60 per cent by 2011. Eurasian Natural Resources Corporation jumped 8.1 per cent after it said prices may rise for its most profitable product, ferrochrome.

Anglo American, BHP Billiton, Rio Tinto and Xstrata were 1.3 to 6.9 per cent higher. Data from three major economies suggesting the worst of the global recession may be over also added to the investor optimism.

In China, newspapers said factory output rose in May at the fastest pace since last September, while official data showed British industrial output rose in April for the first time in more than a year and Italian output rose after 11 straight monthly falls. However, economists cautioned that difficulties still lay ahead across the globe.

In individual stock movers, Adidas rose 7.3 per cent after it said it expected sales in South Africa to grow at a double-digit rate in the years to come thanks to the football world cup in the country next year. On the downside, defensives were out of favour as investors turned towards cyclical stocks.