LONDON (Reuters) - European shares closed higher on Tuesday as hopes grew that Greece’s parliament will vote through the tough austerity measures needed to secure financial aid from international lenders and avoid a default on the country’s debt.
The pan-European FTSEurofirst 300 .FTEU3 index of top shares closed 0.6 percent higher at 1,080.83 points, its biggest one-day percentage gain in a week.
The Greek parliament is debating measures such as spending cuts, tax rises and privatizations to secure the next tranche of 12 billion euros ($17 billion) in aid from the European Union and the International Monetary Fund (IMF), with lawmakers set to vote on the plans on Wednesday and Thursday.
“Investors expect a positive outcome (from the Greek parliamentary vote) and some sort of resolution. Nobody really wants Greece to default because you can’t predict the impact if a euro zone country were to default,” said Anita Paluch, sales trader at ETX Capital.
Greek banks .FTATBNK rose 4.7 percent on hopes that the austerity measures would be endorsed, while the STOXX Europe 600 banking index .SX7P climbed 1.3 percent.
Sentiment was also boosted by France’s agreement with its banks to roll over some Greek debt, while Germany said it will meet with the heads of its top insurers and banks on Thursday to discuss the French proposal for private sector involvement in a Greek debt rollover.
Analysts said the uncertainty surrounding the Greek debt crisis, and the possibility of it spreading to other highly indebted euro zone countries states, was making investors nervous.
“The tensions in Greece now seem to be causing such risk aversion that liquidity is drying up by the day and flow is becoming increasingly thinner with sellers grouping on the sidelines,” said UniCredit credit strategist Markus Ernst.
The euro edged up against the U.S. dollar on Tuesday, though further gains looked limited as investors feared that a bailout would only delay an eventual default given the size of Greece’s debt burden.
Across Europe, Britain's FTSE 100 .FTSE, Germany's DAX .GDAXI and France's CAC-4040 .FCHI added 0.8 to 1.5 percent, while the Thomson Reuters Peripheral Eurozone Countries index .TRXFLDPIPU rose 1.5 percent.
Adding weight to the market’s rally were gains in commodity stocks as metals and oil prices rose on a weak dollar as risk appetite improved.
The STOXX Europe 600 basic resources index .SXPP was up 1.2 percent, in tandem with stronger copper prices, while oil majors .SXEP added 0.4 percent as Brent futures rose to above $108 a barrel.
On the downside, the STOXX Europe 600 telecommunications index .SXKP was the biggest sector decliner, down 1.1 percent, as Cable & Wireless Worldwide CWP.L fell 13.9 percent after a profit warning to its lowest level since its demerger last year.
Siemens (SIEGn.DE) fell 1.9 percent after Europe’s biggest conglomerate warned of growth easing amid a slowdown in the global economy.
Other fallers included Belgian discount supermarket chain Colruyt (COLR.BR) which fell more than 12 percent to a low last seen in November 2009, after missing consensus expectations for its full-year results.
Reporting by Harpreet Bhal