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Buoyant Commodities Help Euro Stocks Higher

European stocks closed firmly higher Monday as buoyant commodity stocks made up for losses in financials, while bearish brokerage comment punctured Royal Bank of Scotland (RBS) and British Airways.

Energy stocks featured prominently among the top weighted gainers, with Total rising 3.1 percent, BG Group 3.9 percent and BP 1.3 percent, as crude traded around $126 a barrel.

Four miners were the top winners among British stocks -- Kazakhmys gained 6 percent, Vedanta gained 8.6 percent, Anglo American gained 4 percent and Lonmin gained 4.2 percent.

"I'm a big believer in the long-term commodity bull run, but we expect a correction at some point as they are very much overbought," Philippe Gijsels, strategist at Fortis in Brussels, said.

"We are neutral but not underweight on the sector as it would be really dangerous to stand in front of a train that's running this fast," he added.

RBS fell 3.9 percent to lead banks lower, with investors citing a technical sell-off related to its rights issues and gloom in the banking sector. Goldman cut its price target on the stock to reflect it going ex-rights.

Other banks were also weaker, with Alliance & Leicester falling 2.4 percent, HBOS 1.4 percent and Societe Generale down 1.9 percent.

British mid-cap Bradford & Bingley slid 15.8 percent on worries over its outlook and a 300 million pound cash call, with some analysts already valuing the firm as if it was no longer writing new business.

Banking stocks have been hit over the past year by fears over the impact of a meltdown in the risky U.S. subprime mortgage market that has forced many banks to unveil massive asset writedowns and emergency capital increases.

The DJ Stoxx banking index, one of the worst performing sectors in Europe so far this year, has lost 15 percent year to date.

German online mortgage financier Interhyp surged 37.7 percent after a unit of Dutch financial services group ING offered 416 million euros for it.

British Airways fell 4.4 percent after downgrades to "sell" from ABN Amro and Deutsche Bank.

Bear Market Rally

The FTSEurofirst has gained 14 percent since mid-March, when the Federal Reserve helped bail out stricken U.S. bank Bear Stearns, but is still down 16 percent from a 6-1/2 year peak hit last July.

While a credit market crisis sparked by the collapse in U.S. subprime mortgages has caused a stock bull run to come to a screeching halt, things have looked up for equities in the past couple of months due to U.S. rate cuts and reasonable results from Europe's biggest companies.

But analysts categorize the recovery as a bear-market rally that is sensitive to any bit of negative data.

"Bear market rallies since 1973 last for an average of 35 trading sessions and add 11-12 percent to markets," said Gijsels, pointing out the S&P 500 was around this level now.

"There's a danger that economic figures will disappoint over the next couple of quarters, while corporate figures will also deteriorate," he said.

Among other major movers, German truckmaker MAN rose 5 percent after Goldman Sachs raised its price target on the stock.