European shares closed higher on Monday, lifted by robust energy stocks, but ended the first half of the year with a 20 percent decline as a surge in crude prices underscored concerns over inflation, adding to worries about bank losses.
The FTSEurofirst 300 index of top European shares ended up 0.76 percent at 1,201.36 points, having shed 10 percent in June compared to a 0.38 percent fall in the same month a year earlier.
Oil prices hit a fresh record above $143 a barrel, boosting heavyweight oil shares BP, Royal Dutch Shell and Total which gained between 2.4 and 3.2 percent.
"We expected to see some dips this month and expect markets to remain volatile in the short term," senior equity strategist Markus Wallner at Commerzbank in Frankfurt said, adding that the biggest concern remained inflation.
"We cannot anticipate the further development of oil since there are so many different factors at work -- demand and supply, speculation, a weaker dollar, and another risk factor is geopolitical," he added.
Among telecommunications groups, France Telecom soared 7.2 percent after it walked away from its bid for TeliaSonera and indicated it may return cash to shareholders.
TeliaSonera slumped 10 percent.
In a note to clients, Dresdner Kleinwort raised its recommendation on France Telekom to "neutral", cautioning that "there is still a risk of FT doing a deal of some kind." The speculation buoyed shares in KPN, up 2.3 percent.
British peer Vodafone rallied 5.3 percent after announcing a deal with News Corp's MySpace under which footage from Vodafone-sponsored music events will be made available to users of the social networking website.
Food producers were also major gainers on Monday, with Cadbury adding 3.7 percent, fully recovering all of last week's losses, while Swiss peer Nestle rose 3 percent after its 1-for-10 share split to increase liquidity took effect.
Another traditional safe-haven, pharmaceuticals, were also in demand with AstraZeneca up 1.9 percent and Novartis 2.7 percent ahead, while Roche rallied 5.1 percent after it said its blockbuster cancer drug Avastin produced good results in a trial.
The FTSEurofirst has now suffered four successive quarters of losses, and its 20 percent decline in the first half compares with an 8.2-percent gain in the first half of 2007.
On the downside, banks remained the biggest losers by weight with UBS down 4.3 percent, having hit a 10-year low amid fears of further losses and after sources with direct knowledge of the matter told Reuters last week that the Swiss bank might sell off the heart of its U.S. wealth management business.
"Two years ago, it was almost unthinkable that they would sell it," said Peter Thorne, an analyst at Helvea.
"It is not exactly the family silver but almost. In my mind, it has been slated for disposal ever since the crisis broker," he added.
"The situation at UBS confirms that we haven't overcome the crisis yet," Commerzbank's Wallner said, adding that "the writedowns may soon be over but some business segments are severely hurt."
Other banks were also hit, with Deutsche Bank down 1.2 percent and Lloyds TSB down 1.97 percent.
Natixis shed 5 percent after it said it raised its stake in Spanish utility Iberdrola to 5.5 percent from 3.78 percent.