Banks, builders perform well as European stocks end higher

European shares closed higher yesterday with construction stocks gaining after Holcim results pleased investors, while banks and commodity stocks performed well.

The pan-European FTSEurofirst 300 index of top shares closed up 1.4 per cent at 944.94 points. The index has risen more than 46 per cent from its lifetime low on March 9 as investors have become more confident over the prospects of recovery.

Across Europe, the FTSE 100 index was up 1.4 per cent, Germany's DAX was 1.5 per cent higher and France's CAC 40 was up 1.6 per cent.

"The good performance today is partly linked to better-than-expected numbers from Holcim and Ahold... as well as the strong rebound in China, which has had quite a setback," said Heino Ruland, strategist at Ruland Research.

Sentiment improved after Chinese stocks surged 4.5 per cent, posting their second biggest daily percentage gain of the year, as modest signs of official support for the market helped to trigger technical buying after a 20 per cent dive in the two weeks up to Wednesday's close.

Construction stocks were among the top performers. Cement maker Holcim gained 5.7 per cent after it said the government stimulus packages in the US and Europe would boost the construction industry next year after the downturn in the United States eased in the second quarter.

Vinci, Lafarge and CRH were up 3.3 to 4.7 per cent.

Dutch supermarket group Ahold was 3.9 per cent higher after it reported second-quarter profit above forecasts, as it increased market share and clamped down on costs, convincing investors of its operational strength.

Banks added the most points to the index.

UBS rose 4.5 per cent after Switzerland sold its stake in the bank, at the top end of its price range, a source said, making a profit from last year's rescue deal. Banco Santander, BNP Paribas and Nordea Banks were up between 1.4 to 3.2 per cent.

Energy shares were higher as crude steadied at around $72 a barrel after a drawdown in US inventories.

BG Group, BP, Royal Dutch Shell and Total were between 1.4 to 2.5 per cent higher.

Miners gained, with Rio Tinto up one per cent as it positioned itself for a comeback after posting a record drop in half-year profit and selling off shares and assets to slash debt.

Anglo American, Antofagasta, BHP Billiton, Eurasian Natural Resources Corporation and Xstrata were up between 1.9 to 5.3 per cent.

Some strategists remained cautious, with stocks paring gains earlier after the number of US workers filing new claims for jobless benefits unexpectedly rose last week as companies continued to cut payrolls amid uncertainty over the economic outlook. Initial claims for state unemployment insurance benefits rose 15,000 to a seasonally adjusted 576,000 in the week ended Aug. 15 from 561,000 the prior week, the US Labour Department said.

"Chart analysts would say global equity indexes are looking very overbought. The breadth of the rally is encouraging the optimists to believe this is the real thing," said Jeremy Batstone-Carr, strategist at Charles Stanley.