European stocks rose yesterday, boosted by gains in banks, acquisition talk and a lower oil price ahead of a Federal Reserve statement expected to hold rates and stop short of signalling imminent increases.
The pan-European FTSEurofirst 300 index ended 1.1 per cent higher at 1,227.65 points, with banks the top-weighted gainers.
Barclays led the sector higher with a 6.5 per cent jump after raising nearly $9 billion from investors including Qatar and Japan's Sumitomo Mitsui.
Credit Agricole jumped 7.3 per cent, Royal Bank of Scotland gained 4.5 per cent, HSBC rose 1.6 per cent and Santander advanced 2.7 per cent.
UBS jumped five per cent as a source familiar with the situation said the bank had hired investment bank Lazard as an adviser to help decide which businesses should be expanded or slashed.
The DJ Stoxx European banking sector index, the sector worst battered by a crisis in credit markets, enjoyed its best day in more than two months, gaining three per cent.
Yesterday's rally comes in the middle of a weak month for European stocks, which have lost eight per cent in June.
"This shows it is a gentle bear trend, and we don't see things getting materially worse, materially faster, but things need to get materially better," said John Haynes, a strategist at Rensburg Sheppard Investment Management.
"I'd expect the general tone of corporate guidance to be pretty downbeat through the third quarter," he said.
Acquisition talk swirled, giving the market another shot in the arm.
German auto parts supplier Continental jumped nearly nine per cent on resurgent talk of private equity bid interest. The company declined to comment.
And Deutsche Postbank rose 6.8 per cent on a tide of European bank takeover speculation even as German banks signalled unwillingness to overpay for the country's biggest retail lender.
ING, Lloyds TSB, Deutsche Bank and Santander were among interested parties, sources familiar with the situation said. Their stocks rose by between 0.8 and 2.7 per cent.
Across Europe, Britain's FTSE gained 0.6 per cent, while Germany's DAX rose 1.3 per cent and France's CAC ended 1.4 per cent higher.
The Federal Reserve is widely expected to stay put at two per cent, but the Fed's tone on inflation versus growth will be carefully watched.
The bank is expected to indicate slightly greater unease on inflation but stop well short of signalling that higher rates are imminent.
"If they don't keep rates steady they've obviously forgotten how to speak English," said Mr Haynes.
"Everybody's on message so anything that deviates from that either in the action or the interpretation of the action will be met with raised eyebrows, but I don't see any reason why they will deviate from that," he said.