European shares rose in afternoon trade today, supported by gains in banks and drugmakers, after the European Central Bank kept interest rates on hold as expected, while investors awaited earnings from US firms.

By 1316 GMT, the pan-European FTSEurofirst 300 rose 0.6 per cent at 1,063.33 points, gaining for the second straight session.

Banks were higher, with Barclays, Deutsche Bank, Credit Suisse and BNP Paribas up 0.9 to 2.2 per cent.

The ECB kept interest rates unchanged at a record low of 1.0 per cent, with attention turned on ECB President Jean-Claude Trichet's news conference at 1.30 GMT.

Appetite for risky assets such as equities rose as the VDAX-NEW volatility index shed 7.8 per cent to a 19-month low. The lower the index, which is based on sell and buy options on Frankfurt's top-30 stocks, the higher the market's desire to take risk.

The earnings season in the United States is seen as giving direction to equities, and investors will closely watch quarterly figures from chipmaker Intel Corp today and JPMorgan Chase tomorrow.

"At the moment we have a see-sawing market. Investors are looking for indication from Wall Street, and we're waiting (to see) what will come from the US with the Intel results later," said Heinz-Gerd Sonnenschein, equity markets strategist at Deutsche Postbank in Bonn.

Pharmaceutical firms were also big gainers. AstraZeneca was up 1.9 per cent as the firm gained for a second session on a positive note from Credit Suisse on Wednesday and Deutsche Bank upgrading its target price today.

Sanofi-Aventis, which also had a price target hike by Deutsche Bank, climbed 1.4 per cent. GlaxoSmithKline was up 1.3 per cent.

Across Europe, Britain's FTSE 100 index, Germany's DAX and France's CAC 40 rose 0.4 to 0.6 per cent.