Buoyant banks propel European stocks to 5-month closing high

European equities ended at their highest close in five months yesterday, propelled by buoyant banking stocks, as US macro data showing the recession was abating helped shares extend their sharp three-month rally.

Data showed sales at US retailers rose in May for the first time in three months, and the number of workers filing new applications for jobless benefits fell for a fourth straight week last week.

The FTSEurofirst 300 index of top European shares ended 0.9 per cent higher at 887.78 points, the index's highest close since January 6.

Thursday's rally was led by banking shares, such as HSBC, UBS, Barclays and BNP Paribas, up 2.2-5.6 per cent.

But sectors seen as defensive such as utilities, pharma and telecoms - shunned by investors during most of the spring rally - were also on the rise, with Vodafone up 2.5 per cent, Roche up 1.9 per cent and E.ON up 1.3 per cent.

"Cyclical stocks are now priced at valuation levels that we usually see at mid-cycle. That's premature because the economic activity is still in bad shape," said Chicuong Dang, equity analyst at KBL Richelieu, in Paris.

"Meanwhile, valuation multiples in sectors such as telecoms and utilities are still very attractive."

Around Europe, the UK's FTSE 100 index gained 0.6 per cent, Germany's DAX index rose 1.1 per cent, and France's CAC 40 added 0.6 per cent.

Auto stocks gained ground, with Daimler up 2.7 per cent and BMW up 1.2 per cent. French car parts maker Valeo, upgraded to "buy" by Merrill Lynch, surged 8.5 per cent.

Among the few stocks on the downside, Carrefour lost 3.7 per cent, dragged lower by market talk that the retailer could lower its profit outlook, according to traders. Carrefour declined to comment.

The FTSEurofirst 300 has risen 38 per cent since reaching a record low in early March, as better-than-feared macro data fuelled recovery hopes.

The sharp rebound has been led by banks, up 118 per cent over the past three months, and basic resources, up 85 per cent, while sectors seen as defensive have lagged behind, with telecoms up only six per cent and healthcare up 13 per cent.