Banks and commodities lift European shares

European shares rose yesterday on prospects that the global economic recovery was still on track following recent improving economic data, with banks and commodity stocks leading the gainers.

The FTSEurofirst 300 index of top European companies closed 1.3 per cent higher at 861.63 points on a "triple witching" day, after rising 0.6 per cent on Thursday to snap a four-session losing run.

Volumes on the FTSEurofirst 300 were nearly 140 per cent of its 90-day average daily volume.

Triple witching is the expiry of stock index futures, stock index options and single stock options.

The index, however, lost 2.7 per cent this week - the second weekly loss since early March, which was the start of current rally that has seen the pan-European benchmark up 33.5 per cent from the lifetime low hit on March 9.

"The third quarter when we start seeing the earnings coming through and the corporate statements that come with it will be the most interesting time," said Philip Lawlor, chief portfolio strategist at Nomura.

Mr Lawlor said any indication from major companies that things were not as bad as they had thought or order books were starting to firm up would send the market higher.

Banks were among the top gainers, with Barclays, Banco Santander, Standard Chartered, BBVA, Credit Agricole and Societe Generale up between 1.2 and five per cent.

European Union leaders agreed more steps to avert a repeat of the banking crisis that has sapped the world economy and the International Monetary Fund said 2010 might deliver stronger growth than earlier forecast.

Morgan Stanley downgraded its euro zone growth forecast for 2009 to minus 4.4 per cent from minus 3.3 per cent but said it was starting to see upside risk building on its 2010 forecast of 0.5 per cent growth.

Insurers were also higher, helped by a positive sector note from Deutsche Bank. The broker upgraded price targets for Aviva and AXA, which gained 5.8 per cent and 1.1 per cent, respectively. Index heavyweight oil producers were in demand, buoyed by firmer crude prices. BP, Royal Dutch Shell, Total, Repsol and BG Group put on 0.6 per cent to 3.8 per cent.

Firmer metal prices also lifted mining shares, with Xstrata , Vedanta Resources, BHP Billiton, Fresnillo, Lonmin and Anglo American rising two per cent to 5.6 per cent.

Across Europe, Britain's FTSE 100 rose 1.5 per cent, Germany's DAX was flat and France's CAC 40 advanced 0.9 per cent.

Porsche was down 1.4 per cent after the car maker said big gains on derivatives bets linked to Volkswagen shares offset a decline in nine-month earnings at its core sports car business. Volkswagen ordinary shares shed three per cent.

Within the auto sector, Daimler slipped 2.7 per cent and BMW lost 1.5 per cent.

Telenor dropped four per cent after Russia's bailiffs service said it had passed an order to auction off Telenor's shares in mobile firm Vimpelcom to cover a $1.7 billion fine for holding back Vimpelcom's entry into Ukraine.