Europe shares close higher as BNP leads banks up

European shares closed higher yesterday with banks gaining after BNP Paribas raised capital to shake off government influence and with US house prices rising further.

The pan-European FTSEurofirst 300 index rose 0.2 per cent to a provisional close of 1,002.92 points.

The benchmark index is up more than 55 per cent from its lifetime low of March 9, as investors have become more confident on the prospects of economic recovery. It has risen 18 per cent this quarter, on track to post its best quarterly rise in almost a decade.

"We remain cautious based on our view that the rally has been driven by government stimulus," said Jeremy Batstone-Carr, strategist at Charles Stanley.

"I'm not convinced that the market as the ability to maintain these kinds of levels. The data is beginning to roll over. Valuation metrics indicate that there is scope for a pronounced pullback. We've come too far, too fast."

Financials were standout gainers, with BNP Paribas up 1.8 per cent as investors welcomed its move to launch a €4.3 billion capital increase and pay back French state aid.

Barclays, Société Générale and UniCredit rose between 1.3 and 2.2 per cent.

On the downside, miners were out of favour as metal prices eased. BHP Billiton, Rio Tinto, Anglo American, Lonmin and Xstrata were down 0.6-3.2 per cent.

US single-family home prices in July rose from the previous month, surpassing forecasts and bolstering the case for housing market stability after a three-year plunge.

The S&P/Case-Shiller composite index of 20 metropolitan areas rose 1.6 per cent in July from June, more than triple the estimate of a 0.5 per cent rise found in a Reuters poll.

But US consumer confidence fell unexpectedly as the worst job prospects in 26 years fuelled worries over personal finances. The Conference Board, an industry group, said its index of consumer attitudes fell to 53.1 in September from a revised 54.5 in August.