European shares close sharply higher; oils lead

A gong is pictured in the middle of the Frankfurt stock exchange as traders work at their desks in front of the DAX board December 14, 2009.

LONDON (Reuters) European equities closed sharply higher on Monday, with energy shares gaining strength from higher crude prices as cold weather gripped both sides of the Atlantic, and banks recovering from recent losses.

At the start of a week shortened by the Christmas holiday, the pan-European FTSEurofirst 300 index rose 1.5 percent to close at 1,027.87 points, having fallen in the previous two sessions.

The index is up more than 59 percent from the lifetime low it hit in early March, with several major economies having come out of recession.

Energy shares rose as crude added to Friday's gains. Crude for February rose 0.7 percent to around $75 a barrel, as cold weather gripped both Europe and the United States, though prices retreated in late afternoon trade, as the dollar rose.

BP, Royal Dutch Shell, Repsol, ENI, Total and StatoilHydro rose between 1.8 and 3 percent.

Cairn Energy rose 4.7 percent after the explorer said it secured a rig to allow it to commence a drilling program offshore western Greenland.

"People who have missed the rally, such as German insurance companies, are trying to get into the market," said Heino Ruland, strategist at Ruland Research, in Frankfurt.

He added: "Some of the laggard fund managers need to put more equity in their portfolios. Some of us missed the boat.

"There's no news out (today) that would justify this sort of rise, and it's on low volume. I think the rally will go further. The economic recovery in the third quarter was strong, and it will also be in the fourth quarter."

Banking stocks bounced back after slipping in previous sessions on concerns over stricter capital regulations,

BNP Paribas, Banco Santander, Barclays, Credit Suisse, HSBC

Societe Generale, Standard Chartered and UBS rose between 1.6 and 3.3 percent.

Deutsche Bank, however, said in a report the banking sector would underperform in 2010, given the more restrictive regulatory environment.

"If economic recovery continues in 2010, the next phase in the cycle is to look for growth. The regulatory changes proposed by Basel are not sufficient to destabilize the system. But they are sufficient to drive growth out of the sector," it said.

Across Europe, Britain's FTSE 100 index ended the day 1.9 percent higher; Germany's DAX and France's CAC 40 rose 1.7 and 2.1 percent respectively.

Wall Street was higher around the time European bourses were closing. The Dow Jones, S&P 500 and Nasdaq Composite were up between 1 and 1.2 percent. Aluminum producer Alcoa rose 9.5 percent after announcing a joint venture to build an aluminum complex in Saudi Arabia, and on a Morgan Stanley upgrade. Norwegian aluminum producer Norsk Hydro rose 5.6 percent.

MINERS RISE

Miners got strength from stronger base metals prices, including copper.

BHP Billiton, Anglo American, Rio Tinto, Lonmin and Xstrata

rose between 1.4 and 3.4 percent.

Among individual stocks, Actelion dropped 3.9 percent after Europe's biggest biotech company said its almorexant insomnia drug had unspecified safety problems in a late-stage trial, even though it met its main target.

Safran rose 4.5 percent after its aero-engines joint venture with General Electric won a multi-billion dollar deal to supply engines for China's future C919 plane

(Additional reporting by Atul Prakash; Editing by Rupert Winchester)