European stocks close higher as banks and commodities rise

European shares closed higher yesterday for the fifth straight day, with banks and commodity stocks the biggest gainers, as investors confidence about a global economic recovery improves.

The pan-European FTSEurofirst 300 index of top shares closed up 0.4 per cent at 870.56 points in choppy trade, having fallen earlier to 865.82 points.

The index is up around seven per cent this week, its best weekly gain since late November, and is up around 34 per cent from its lifetime low of March 9.

Across Europe, the FTSE 100 index was up 0.6 per cent, Germany's DAX was 0.4 per cent higher and France's CAC 40 was up 0.6 per cent.

"We have had a whole week of great gains. The market has been anticipating a decent set of earnings and the message the market has been looking for is that the corporate sector is behind the worst of the recession," said Mike Lenhoff, strategist at Brewin Dolphin.

"While some results are going to be negative they probably are not going to be as negative as they have been, while other companies are going to have positive earnings. Investors are becoming more confident that the recovery is now in its formative stages," he said.

The banking sector was higher, rebounding from earlier falls as investors digested results from US peers Citigroup and Bank of America. HSBC, BNP Paribas, Société Générale and Banco Santander were up 0.3-1.6 per cent.

Citigroup reported a $4.3 billion second-quarter profit thanks to gains on its Smith Barney deal, while Bank of America posted a quarterly profit that topped Wall Street forecasts.

However, General Electric Co said profit fell by almost half, on a deeper drop in revenue than Wall Street expected, as the slump that has gripped its finance and media businesses took hold of its heavy industrial units.

Energy stocks rose as crude oil gained 2.1 per cent. BG Group, BP, Royal Dutch Shell and Total were up 0.3-1.7 per cent.

Miners ticked up as copper gained 1.9 per cent. Antofagasta, BHP Billiton, Eurasian Natural Resources Corporation, Rio Tinto and Xstrata were 0.5-5.8 per cent higher.

On the downside, Accor lost 7.5 per cent after second-quarter sales dropped nine per cent as the economic crisis weighed on its hotel business.

Carrefour was down 3.7 per cent after, the world's second-biggest retailer behind US group Wal-Mart, said second-quarter sales fell 1.2 per cent, hurt by weaker western European markets, lower petrol prices and exchange rates.

Looking at macroeconomic data, helping buoy investor enthusiasm, new US housing starts and permits jumped more than expected in June, propelled by a rise in single-family homes, a government report showed.

"Starts are at a very low level but we have established a base in the last six months and I would say this is confirmation that starts are not going to go any lower and the increase in permits might actually see thins move up from here," said Christopher Low, chief economist at FTN Financial.