European stocks rallied yesterday after US and eurozone data raised hopes of an economic recovery and banking results pushed London's market to its highest point this year.

London's FTSE 100 index struck a 2009 high on the back of strong underlying profits at British banks Barclays and HSBC, dealers said.

"Today's strength by the FTSE 100 index sees it at fresh highs for 2009 - and back to its best levels for nearly 10 months. There seems to be no change to the optimistic mood at the moment," said IG Index analyst Philip Gillet.

London ended the day up 1.61 per cent at 4,682.46 points after earlier peaking at 4,688.04. The Paris CAC 40 rose 1.50 per cent to 3,477.80 and the Frankfurt DAX jumped 1.78 per cent to 5,426.85.

Elsewhere in Europe, Amsterdam's AEX index rose 1.53 per cent to 287.49 points, Madrid's Ibex-35 0.42 per cent to 10.901, the Swiss Market Index 0.28 per cent to 5,967.43, Milan's FTSE Mib 1.65 per cent to 20,914 and Brussels' Bel-20 rose 0.40 per cent to 2,177.77 points.

US stocks also forged higher yesterday, riding on momentum from a three-week rally.

In early trade the Dow Jones Industrial Average was up 1.08 per cent at 9,270.92. The Nasdaq composite increased 0.96 per cent to 1,996.80 while the broad-market Standard & Poor's 500 index added 1.22 per cent to 999.51.

On the foreign exchange market, the European single currency advanced to 1.4430 dollars, after hitting $1.4436, its highest point since December 18.

"All eyes have been on the banks, with Barclays reporting a 10 per cent rise in profits for the first six months of this year - slightly below market expectations. HSBC has beaten expectations to show a profit in the first six months," added Mr Gillet.

"Other noticeable movements included broad strength across the mining sector as firmer commodity prices and hopes of an early economic upturn once again whet the appetite of investors."

Barclays shares surged 6.70 per cent to 322.55 pence as investors welcomed the earnings news.

The bank said first-half net profits soared as its investment banking unit benefited from market turmoil and the part-purchase of US investment giant Lehman Brothers.

Net earnings leapt 9.9 per cent to £1.9 billion (€2.2 billion) in the six months to the end of June, compared with £1.7 billion in the same part of last year.