Technology and chemical stocks propelled European shares higher on Wednesday as the oil price hovered near $129 a barrel during European trading hours, soothing investors' concerns about the economic outlook.
Among major movers, shares in Deutsche Post fell 5.4 percent after the German mail group said it planned a partnership with rival United Parcel Service as part of a restructuring of its DHL Express business in the U.S. UPS shares rose 3.5 percent in the New York.
The pan-European FTSEurofirst 300 index closed up 0.9 percent at 1,326.69 points after three days of losses.
"After dumping stocks without discrimination in the first part of the year, we're now entering a phase where investors are trying to make the distinction between stocks that will show good resilience in an economic downturn, and the others," said Jean-Luc Buchalet, CEO of Pythagore Investissement, in Paris.
The DJ Stoxx European technology index rose 2.2 percent, with German software company SAP up 4.8 percent, helped by an upgrade from Cheuvreux.
Cap Gemini rose 4.8 percent, and Alcatel-Lucent added 3.1 percent.
"The positive sentiment was triggered by declining oil prices," said Christian Stocker, equity strategist at UniCredit Global Research.
U.S. crude dropped $3.34 on Tuesday and hovered around $129 a barrel during European trading hours. The oil price hit a record high last week above $135.
The price of oil, up more than 30 percent this year, has fed concerns about consumer spending and inflation.
European chemical shares were the best-performing sector after Dow Chemical said it was hiking prices on all products by up to 20 percent.
The DJ Stoxx European chemical index rose 2.3 percent, led by Clariant, up 4.3 percent, Bayer AG, up 3 percent, BASF, up 1.5 percent, and Ciba Holding up 2.5 percent.
Banks Seen Lagging
Shares in Royal Bank of Scotland fell after Italy's Generali dropped out of the running for RBS's insurance arm, just hours ahead of a first bid deadline, prompting speculation that interest in the asset is fading.
Other banks such as Lloyds TSB, HBOS and Barclays also fell.
"Everyone is careful in the run-up to U.S. banks reporting second-quarter results from mid June. Until then, I think banks will lag behind," Stocker said.
Nonetheless, the DJ Stoxx index of European insurers gained 1.8 percent with France's Axa up 2.6 percent, Allianz rising 1.6 percent and Munich Re up 1.5 percent.