European stocks gain on rate hopes

European stocks ended higher yesterday, helped by expectations of a US interest rate cut while strong durable goods orders data soothed worries over the health of the world's biggest economy.

Shares in French bank Société Générale, which last week unveiled a massive loss it blamed on a rogue trader, soared 10.4 percent, sparked by market talk that rival bank BNP Paribas could launch a takeover bid for it.

Mining stocks were among the biggest gainers, buoyed by rising base metal prices. Anglo American gained 5.8 per cent, Rio Tinto added 2.7 per cent and BHP Billiton rose four per cent.

The FTSEurofirst 300 index of top European shares closed 1.6 per cent higher at 1,338.28 points.

But despite yesterday's rise, the index is down 11.2 per cent in January, on track to record its worst monthly performance since September 2002, as equity markets around the world got hammered by fears over the prospect of a US economic downturn.

"The rise in durable goods orders is stronger than what we had expected," Global Equities analysts wrote in a note.

"The growth in orders is slower than what we saw between 2004 and 2006, but it doesn't point to a US recession."

Data showed yesterday that new orders for long-lasting US-made manufactured goods rose by a much larger-than-expected 5.2 per cent in December. Analysts polled by Reuters had expected orders for durables to rise 1.5 per cent.

Around Europe, Germany's DAX index gained 1.1 per cent, UK's FTSE 100 index rose 1.7 per cent and France's CAC 40 added 1.9 per cent.

Banks, pummelled over the past six months on concerns over their exposure to the troubled US subprime mortgage market, rose yesterday, with the DJ Stoxx bank index rising 2.2 per cent. UBS added 2.9 per cent and Royal Bank of Scotland gained 4.7 per cent.

Commerzbank soared 5.9 per cent, with several traders citing market talk of a takeover bid for the German bank.

German property financier Hypo Real Estate surged 8.4 per cent after it announced that the voting stake held by the country's biggest fund investor DWS, part of Deutsche Bank, rose above three per cent.

French media group Lagardere gained 5.5 per cent as traders cited an upgrade on the stock from Merrill Lynch to "buy".

Retailer Hennes & Mauritz (H&M) dropped two per cent after Morgan Stanley cut its rating to "underweight" from "overweight" due to a gloomy outlook for the retail sector.

German steel trader Kloeckner & Co added 3.9 per cent as preliminary 2007 earnings pleased investors.

Banca Italease rose two per cent after a report in an Italian business daily said a German bank could be interested in buying a big stake in the leasing company.