European shares boosted to one-month closing high

Stronger financials on relief that banks will have more time to adjust to new capital rules propelled European shares yesterday to a one-month closing high ahead of the outcome of a US Federal Reserve meeting.

Investors' appetite for risk assets jumped, while trading volumes on the FTSEurofirst 300 index were about 83 per cent of its 90-day daily average.

The index of top European shares rose for a fifth straight session to end 1.3 per cent firmer at 1,031.17 points, the highest close since mid-November. Germany's DAX rose 1.6 per cent to its highest in more than 14 months.

The FTSEurofirst is up 24 per cent this year and has jumped 60 per cent since a record low in March.

Across Europe, Britain's FTSE 100 index and France's CAC 40 rose 0.7 and 1.1 per cent respectively. A Reuters poll showed the FTSE 100 will rise about 10 per cent next year from its close on Tuesday.

Banks were the top gainers on news that global regulators will give banks a grace period before forcing them to implement stricter capital rules, easing concerns that lenders might need to issue massive amounts of shares in the near future.

"It's certainly helpful if banks are not pressured into having to go to the market within a short space of time," said Luc Van Hecka, chief economist at KBC Securities.

"They have some more leeway in deciding when to strengthen their capital base."

The DJ STOXX banking index rose 2.4 per cent, while Barclays, BNP Paribas, Société Générale, Credit Agricole, Natixis, UBS, Credit Suisse, Deutsche Bank and Commerzbank rose 1.7 to 6.7 per cent.

Greek banks rose sharply after the country, hit by investor jitters about its financial health, raised €2 billion from friendly banks. National Bank, EFG Eurobank and Alpha Bank were up 4.6 to 6.7 per cent.

ING jumped 5.9 per cent after it won strong support from shareholders for a heavily discounted rights issue, helping the Dutch bancassurer cut its reliance on state aid and clearing it to launch a programme of mandated asset sales.

But Bank of Ireland was down nine per cent after central bank Governor Patrick Honohan said the government could increase its 25-per cent indirect stakes in Bank of Ireland and in rival Allied Irish Banks to direct 50 per cent holdings.

Positive data also helped the market. Figures showed the euro zone's dominant service sector grew at its fastest pace in over two years during early December, while the manufacturing sector grew at a rate not seen since March 2008.

US housing starts rose 8.9 per cent, slightly below market expectations, while US consumer prices increased marginally last month, suggesting little urgency for the Federal Reserve to raise interest rates sooner as the economy steadily recovers.

The Fed was due to deliver its decision on interest rates yesterday and was expected to leave lending rates unchanged near zero. It is not expected to shift from its pledge to keep them low for an "extended period".

"With the market expecting a slightly brighter picture to be painted by the Federal Reserve Chairman, at the same time they will not wish to hear any indication that the Fed will raise interest rates earlier than expected next year," said Angus Campbell, head of sales at Capital Spreads.