European shares rise for third day as Greece eyed

European shares rose yesterday on hopes of a possible European Union rescue plan for Greece, with banks stronger, but gains were pared after US Federal Reserve Chairman Ben Bernanke outlined fiscal tightening plans.

The FTSEurofirst 300 index of top European shares rose for a third day, closing 0.6 per cent up at 987.13 points, down from the day's high of 996.12. The index is up 52.9 per cent from its lifetime low of March 9, 2009, but is down 8.1 per cent from a 15-month high it reached on January 11.

Banks added the most points, continuing to recover some of the ground lost last week. BNP Paribas, Banco Santander, Deutsche Bank, HSBC and Société Générale rose between 1.2 and 4.3 per cent.

Credit Suisse rose 3.4 per cent ahead of its full-year results today. Expectations of a rescue plan for Greece rose after sources in Germany's coalition government said Berlin is in intense international and domestic negotiations about possible aid to debt-stricken Greece, but said a decision was not imminent.

European Union leaders are set to hold a special summit on the economy today. "The markets were higher on rumours of a bailout for Greece, but then it was all about Bernanke," said Heino Ruland, strategist at Ruland Research, in Frankfurt. "It looks like he's doing what everybody expected, at least verbally tightening policy. I think we may move sideways for a while. We've had a correction. I don't see any reason for the market to move sharply higher or lower. It will depend on earnings."

"Although at present the US economy continues to require the support of highly accommodative monetary policies, at some point the Federal Reserve will need to tighten financial conditions," Mr Bernanke said in remarks prepared for a hearing of the House of Representatives Financial Services Committee.

The hearing was postponed because of heavy snow that shut down transportation in Washington but the Fed decided to go ahead and make Mr Bernanke's testimony public.

Greek bank shares gained 4.3 per cent while yield spreads between Greek bonds and German bunds tightened. Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC 40 ended the day between 0.4 and 0.7 per cent higher. Wall Street was lower around the time European bourses were closing. The Dow Jones, S&P 500 and Nasdaq Composite were down between 0.6 and 0.7 per cent. The Dow made its biggest percentage gain in three months on Tuesday.

Fortis rose 6.1 per cent after Royal Bank of Scotland upgraded the stock to "buy" from "hold" and as investors' expectations of a European rescue for Greece grows.

"Fortis is more exposed to Greek, Italian, Portuguese and Spanish government debt than any other Benelux insurer. As such, its share price has suffered from the recent market turmoil," RBS analyst Thomas Nagtegaal said in a note to clients.

Other insurers that rebounded included Aviva, AXA, Legal & General, Hanover Re and Prudential, up between 2.9 and five per cent.

Oil majors gave up some of their gains after Mr Bernanke's remarks, as the dollar strengthened, hurting crude prices, which fell to below $73. However, BP and Total rose 1.1 and one per cent, respectively.