Banks, utilities power European shares to end higher

European shares ended higher yesterday after slipping in the past two days, with impressive results from E.ON boosting utilities and banks up ahead of Federal Reserve statements on the state of the US economy.

The FTSEurofirst 300 index of top European shares was up 1.1 per cent at 942.06 points. The index, which slumped 45 per cent last year, is up 13 per cent in 2009 and has surged 46 per cent since last March's lifetime low.

Germany's E.ON rose 5.4 per cent after the world's largest utility said it saw signs that demand for energy was stabilising after a prolonged slump and tweaked its 2009 outlook higher after first-half profits beat forecasts.

"For the reminder of this year, this kind of profitability story is the main driver for people to revise next year's earnings forecasts higher and that's positive for the market," said Franz Wenzel, strategist at AXA Investment Managers.

"Equity markets could easily go higher by about five per cent in the short term," he added.

Across Europe, Britain's FTSE 100 index, Germany's DAX and France's CAC 40 were up 1-1.5 per cent.

The DJ STOXX European Utilities index was among the top sectoral gainers, up 2.6 per cent. GDF SUEZ, Centrica, RWE and Severn Trent advanced between one and 4.3 per cent.

Financial stocks were also among significant gainers ahead of the outcome of the US Federal Reserve's policy-setting committee meeting at 1815 GMT, which is expected to hold its benchmark overnight rate in a range of zero to 0.25 per cent.

The DJ STOXX banking index was up 1.3 per cent, while Barclays, Royal Bank of Scotland, BNP Paribas and Natixis rose between 2.1 and 5.4 per cent.

"I don't think you are going to get anything negative out of the Fed today. What you want to see is a central bank that is not going to take any risks on the deflationary side and withdraw policy earlier," said Bernard McAlinden, a strategist at NCB Stockbrokers.

UBS AG gained 3.1 per cent after news that the Swiss bank and the US government have agreed to settle a long-running dispute over the disclosure of names of wealthy American bank clients suspected of tax evasion.

Britain's Lloyds was up 6.4 per cent. The bank said it would sell the bulk of its Insight Investment unit to Bank of New York Mellon for £235 million ($386 million) as part of a shake-up of its asset management units.

Investors digested a slew of economic news. The Bank of England said Britain's worst recession in decades would end early next year, but it would take time for the gross domestic product (GDP) to return to pre-crisis levels, pushing unemployment up from the current 13-year high.

"There is a kind of euphoria starting to build in. The markets are ignoring negative news and much more focusing on positive news," Mr Wenzel said.

The US trade deficit widened in June to $27 billion, as goods imports rose for the first time in 11 months, and eurozone industrial output fell in June against May, defying expectations of a small rise.

Commodity shares were in demand as crude and metals prices rose. Royal Dutch Shell, BG Group, Tullow Oil, Repsol, Total and StatoilHydro added 1.6 to 4.9 per cent.

Among miners, BHP Billiton, Anglo American, Antofagasta and Xstrata rose 0.5-2.8 per cent.