European shares rallied yesterday, recouping some of last week's steep losses, as banks tracked advances in US financials while oil stocks were also in demand despite weak crude prices. The FTSEurofirst 300 index of top European shares closed up two per cent at 830.19 points, after touching 805.93 earlier in the session -- its lowest since late April. Volumes on the FTSEurofirst 300 were about 70 per cent of the 90-day daily average.

Across Europe, Britain's FTSE 100 rose 1.8 per cent, Germany's DAX rallied 3.2 per cent and France's CAC 40 surged 2.3 per cent.

Banks were among the top gainers, aided by advances in US financials after influential analyst Mere-dith Whitney, who recently founded her own advisory firm, upgraded Goldman Sachs to "buy" from "neutral" and provided a reassuring assessment of the sector's performance. BNP Paribas, Banco Santander, Credit Suisse, Royal Bank of Scotland, Barclays, Commerzbank and Deutsche Bank put on between 1.5 per cent and 4.3 per cent.

In the same sector UBS was a standout performer with a 4.8 per cent rise. A US judge agreed to delay the start of a trial in which US tax authorities hoped to force the Swiss bank to reveal the identities of thousands of wealthy Americans suspected of using the bank to dodge taxes.

The postponement was requested in a joint motion from UBS and the US Justice Department, raising hopes of a settlement in the case.

Elsewhere some said shares looked better value after recent declines. "The market has come back a lot. There is a suspicion that this quarter could prove to be slightly better. Earnings estimates have been revised down quite a bit," said Mike Lenhoff, chief strategist at London-based Brewin Dolphin.