European shares rallied yesterday, wiping out the previous session's losses, lifted by robust gains for British banks such as Barclays and miners, which drew strength from higher metals prices.
The British government's decision to temporarily nationalise troubled bank Northern Rock, takeover talk and expectations of higher dividends fuelled banks, with Barclays up 7.6 per cent and Lloyds TSB advancing 7.3 per cent.
The Sunday Times newspaper reported that Lloyds and Barclays would likely increase their payouts to shareholders.
In the mining sector, BHP Billiton and Rio Tinto each put on more than four per cent. Copper prices rose more than 2.5 per cent to $7,970 a tonne and platinum set a record high $2,107 an ounce.
Energy stocks firmed as oil prices ticked up for a fourth day. BP rose 2.7 per cent, Royal Dutch Shell 2.4 per cent and Total 2.1 per cent.
The FTSEurofirst 300 index of top European shares closed two per cent higher at 1,335.30 points, trimming its year-to-date losses to 11.4 per cent. With US markets closed for the Presidents' Day holiday, volumes in Europe were moderate.
The benchmark index remains over 18 per cent below its multi-year peak set in July 2007. Many analysts define a 20 per cent drop as a bear market and some strategists said yesterday's revival might prove short-lived.
"I'm more inclined to view this as a bounce in a bear market," said Andrew Lynch, a portfolio manager at Schroders.
"In the coming months, equity markets will be looking for a bottom which may be equal or even somewhat lower than the one we have seen recently. Swings will remain violent, both up and down," ING Investment Management said in a note.
The FTSEurofirst 300 set a year-low of 1,223.36 points on January 22.
"It's volatile, one day down, another day up. People are cautious and many are taking a very short-term view," said Giuseppe-Guido Amato, equity market strategist at German brokerage Lang & Schwarz in Duesseldorf.
"Today, with the US markets closed, some sellers were absent from the market," he added.
Among financials, Credit Suisse rose 3.2 per cent, boosted by an agency report that Qatar had bought shares in the Swiss bank. Citing the gas-rich Gulf state's prime minister, Bloomberg News said that Qatar plans to spend as much as $15 billion on European and US bank stocks in the next 12 months.
The DJ Stoxx European banks index rose 2.5 per cent.
"We get days like today where Qatar is buying bank shares, the market rallies. But the long-term fundamentals are still pushing us to the downside rather than the upside," said Mr Lynch at Schroders.
In one example of the woes that have plagued financials since mid-2007, shares in bank IKB fell 24 per cent to €5.12 after the release of details of the latest state-backed rescue package for the German subprime casualty.