European shares climb

European share prices climbed to their highest in more than four months overnight NZT, with sentiment improving after encouraging US economic data and banks surging on hopes that new capital requirements for the sector will not be as tough as feared.

The VDAX-NEW volatility index, one of Europe's main barometer of investor anxiety, fell more than 2 percent and flirted with a 4-1/2-month low. The lower the index, the higher is investors' appetite for risky assets.

The FTSEurofirst 300 index of top European shares finished 1 percent higher at 1082.26 points after touching 1083.46, the highest since late April, supported by US macroeconomic numbers.

New US claims for unemployment benefits fell more than expected last week to a two-month low, while the trade deficit narrowed sharply in July. Analysts said the reports helped to calm fears growth was slowing sharply.

"Perhaps the markets now have come more to terms with the idea that we will have an ongoing recovery, even if at meagre rates," said Klaus Wiener, head of research at Generali Investments.

"On balance, we can finish the year up compared to where we are today."

Financials were among the top gainers, with the Stoxx 600 European banking index rising 2 percent. Barclays, Royal Bank of Scotland, Societe Generale and Credit Agricole jumped 3.4 to 5.1 percent on hopes that new Basel III banking rules on capital requirements will not be as harsh as was thought earlier.

"The fear as a result of the Basel requirement was a bit exaggerated. There has been progress regarding recapitalisation and we think there is sufficiently long time for banks to come to terms with the new requirements," Wiener said.

Regulators and central banks are expected to wrap up discussions about the new capital rules as soon as this weekend, German Bundesbank President Axel Weber said on Wednesday.

Weber said the new standards will not hinder banks from lending and will not endanger economic growth.

Separately the European Central Bank's governing council member Yves Mersch said the euro zone is on the brink of a sustainable recovery and the central bank is likely to discuss removing some support measures at its December meeting.

TECHNICAL OUTLOOK

The Euro STOXX 50, the euro zone's blue chip index, rose 1.1 percent to 2782.43 points, moving further higher from its 50 percent Fibonacci retracement of a fall from an April high to a May low at 2,737.62 points.

The index closed just above it's 200-day moving average of 2780.94 points. If it manages to stay above the average in the coming sessions, that would be a bullish sign for the market. The index faces resistance at around 2,806, its 61.8 percent retracement level.

Among individual movers, British retailers Home Retail fell 2.8 percent after it forecast a 20 to 25 percent fall in first-half profit and a full-year outcome in the bottom half of the current analyst range.

French drugmaker Sanofi-Aventis, up 1.4 percent, denied a report that it had raised its offer for US biotechnology company Genzyme, saying it was sticking to its bid of $18.5 billion or $69 a share.

In a widely expected move, the Bank of England kept UK interest rates at 0.5 percent for the 18th month in a row on Thursday and announced no new quantitative easing purchases.

Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC rose 0.9 to 1.2 percent. The Thomson Reuters Peripheral Eurozone Countries Index was up 1.1 percent.

"With signals that the US economy might not be in quite the state as some had thought, the bulls may start to wade back in, especially as cash yields look set to remain static for some time yet and other safe havens such as gold start to look increasingly overpriced," said Will Hedden, trader at IG Index.

- Reuters