European shares were up by midday on Wednesday, led by the banking sector as Deutsche Bank rose on hopes it will issue a strong outlook on Thursday and commodities tracked crude and metal prices higher.

By 1139 GMT the pan-European FTSEurofirst 300 index of top European shares was up 0.65 per cent at 797.03 points.

"Financials have set new lows over the course of the past couple of weeks. They have been extremely volatile. Overall the sector is in a wait-and-see mode (and) what they are waiting for is some more clarity about what is going to happen next, say with Obama's rescue plan and the talk of (setting up) a bad bank," said Philippe Gijsels, senior strategist at Fortis Bank.

"Meanwhile, the Bank of England has said they are also looking at other alternatives to cutting interest rates to somehow get these bad assets off the balance sheets of the banks so they can start functioning again. I think this is the major driver today in the banking sector," added Gijsels.

US Senate Republicans on Tuesday offered their own, cheaper economic stimulus plans focused on tax cuts, pushing back against a $900 billion Democratic plan they say encourages too much new spending. Banking stocks led the index higher, with Deutsche Bank up 5.4 per cent on hopes that Germany's biggest bank will be upbeat about 2009 prospects when it reports fourth-quarter and full-year results yesterday.

HSBC, UBS and Lloyds Banking Group were up by between 2.6 and 5.3 per cent.

Energy stocks were also among the biggest gainers in the index as crude oil prices rose 1.6 percent. BG Group, BP, Tullow Oil and Total were up by between 1.1 and 4.6 per cent. Miners were on the rise as the price of copper gained 1.7 per cent. BHP Billiton rose 3.9 per cent as it reported a 2.2 per cent increase in first-half profits, aided by a last burst of Chinese demand growth.