European shares rise as US data limits gains

European shares closed higher yesterday after France and Germany unexpectedly reported economic growth, but gains were scaled back after data in the United States was less upbeat.

The pan-European FTSEurofirst 300 index of top shares rose 0.7 per cent to close at 948.58 points, after touching a nine-month intraday high of 956.10 points.

Across Europe, the FTSE 100 index ended the day 0.8 per cent higher, Germany's DAX rose one per cent and France's CAC 40 was up 0.5 per cent.

Banks added the most points to the index.

UBS rose 5.4 per cent as investors expected the settlement of a damaging US tax dispute to allow the bank to focus on becoming profitable again.

UBS, the world's second-largest wealth manager in terms of managed assets, and the US government on Wednesday settled a long-running dispute over the disclosure of names of wealthy American clients suspected of tax evasion.

Credit Suisse, HSBC, Societe Generale and UniCredit rose between 2.5 and 3.1 per cent.

Shares pared gains early in the afternoon after data showed sales at US retailers unexpectedly fell in July, while the number of workers filing new claims for jobless benefits rose last week, indicating the recession-hit economy faces a bumpy recovery.

"The market is willing to look through (negative) data now," said Georgina Taylor, equity strategist at Legal & General Investment Management. "I might have expected to see a bit more red on the screen. There is a belief that we're at the trough."

Earlier, Germany and France boosted the markets by achieving a shock return to economic growth in the second quarter of the year, ending their recessions earlier than many policymakers and economists expected.

Among other financials, Britain's biggest insurer, Prudential soared 10.7 per cent after it reported stronger-than-expected half-year profits and raised its interim dividend.

Copper prices hit their highest in more than 10 months on economic optimism. Anglo American, Antofagasta, BHP Billiton and Rio Tinto rose between 2.2 and 4.2 per cent.

On the downside, Anheuser-Busch InBev closed 6 per cent lower after it said the second half of the year would be significantly weaker. The company reported second-quarter profit above analyst forecasts.

Dutch insurer Aegon fell 5.9 per cent after it reported a surprise second-quarter loss and said it would sell up to €1 billion ($1.4 billion) in stock to partially repay aid it received from the Dutch state.

Food group Nestle fell 2.3 per cent after brokerage Chevreux downgraded it to "underperform" from "outperform" and Natixis cut it to "add" from "buy".

The Federal Reserve, in leaving short-term interest rates near zero on Wednesday, said economic activity was levelling out.