Economic recovery hopes boost European equities

European shares hit an 11-month closing high for a second straight session yesterday; powered by energy and financial stocks, on expectations the global economy was on a recovery path.

A raft of macro-economic data also boosted investors' belief that the worst of the economic downturn was over, but analysts said the market has risen too far too fast and could pause for a short period before starting its forward march again.

The FTSEurofirst 300 index of top European shares ended 0.5 per cent higher at 1,011.26 points, rising for the ninth session in 10. The index, up 21 per cent in 2009, has jumped 57 per cent since hitting a record low in March this year.

It is up 19 per cent this quarter and on track to post the index's strongest quarterly performance in almost a decade, but is still down about 38 per cent from a near seven-year high touched in mid-2007.

"We are moving into a period of stronger economic growth and there are tangible signs we are coming out of the recession. You have got companies going into this period of growth in a leaner and meaner shape. That's a pretty powerful mix of positivity," said Henk Potts, equity strategist at Barclays Stockbrokers.

"The current rally is unsustainable but there is every indication that we can at least hold on to these gains in the short term - be a little bit more cautious," he added.

Across Europe, Britain's FTSE 100 index, Germany's DAX and France's CAC 40 rose 0.5-0.8 per cent.

Financials were among the top gainers, with the DJ banking index up 1.2 per cent and surging 174 per cent since early March. Standard Chartered, HSBC, Royal Bank of Scotland, BNP Paribas, Société Générale and Credit Agricole rose 0.5-3.8 per cent.

Bank of Ireland surged 18.6 per cent after the bank said it was confident it could raise internally any additional capital that might be needed following the transfer of €16 billion of loans to a state-run "bad bank".

Swedbank fell 2.2 per cent. It moved to boost its core capital, announcing plans to buy back up to three billion Swedish crowns ($438.8 million) of Tier two debt.

Citigroup said in a note that it preferred sectors like financials and energy as they "should continue to benefit from an earnings recovery and are reasonably valued".

Energy shares gained as crude hovered around $72.50 a barrel after rising more than five per cent this week. BP, Royal Dutch Shell, Repsol, Total and StatoilHydro added 0.7-1.6 per cent.

Tullow Oil jumped 4.9 per cent, extending Wednesday's 9.2 per cent rise, after the oil explorer said it had struck what may turn out to be the largest oil find yet in a block it plans to partly sell off in Uganda's Lake Albert basin.