European Stocks End Slightly Higher

European shares rose on Tuesday as gains in banks, energy stocks and French equities offset falls in autos and drugmakers and a slide in Rio Tinto after BHP Billiton abandoned a bid for the miner.

The FTSEurofirst 300 index of top European shares ended up 0.57 percent at 833.36 points, after having traded in a wide range of 812.89 to 848.92, or between 1.9 percent lower and 2.5 percent higher.

French stocks were outperformers after President Nicolas Sarkozy said that the government would launch a major stimulus plan to revive the flagging economy within the next 10 days.

Cement group Lafarge, banks Societe Generale and Credit Agricole, and steelmaker ArcelorMittal all gained more than 7 percent.

On the other side of the Atlantic, the U.S. Federal Reserve announced a plan to buy billions of dollars worth of debt and mortgage-backed securities to loosen up the flow of credit for mortgages, loans for students, autos and credit cards.

"This is another in a series of significant measures over the past few weeks -- slowly but surely they're starting to stabilize sentiment," said Darren Winder, head of macro and strategy research at Cazenove.

"But fundamentally markets are bumping along the bottom with high levels of volatility, and that pattern will continue. Falls in profit haven't fully taken their course," he said.

Banks and energy stocks added most points to the European index.

HSBC gained 6 percent and Credit Suisse jumped 11 percent, while Standard Chartered rose 16 percent as its plan to raise 1.8 billion pounds in a rights issue removed a a worry about its funding position, analysts said.

BP gained 1.5 percent and BG Group rose 4 percent.

But Rio Tinto plummeted 37 percent after BHP Billiton abandoned its bid for the group, while Novartis, GlaxoSmithKline and Sanofi-Aventis lost 2.5-4.1 percent ahead of an EU report on Friday expected to criticize major European drugmakers for anti-competitive practices.

Volkswagen fell 23 percent, continuing its recent wild counter-index moves.

The stock has endured falls of 10 percent or more in a day seven times in the last three months, and risen by 10 percent or more five times, driven by a short squeeze.

Data, Earnings Gloom

Macro economic news, however, continued to be gloomy.

The FTSEurofirst 300 has slumped 45 percent this year, punctured by a credit crisis that piled up losses at banks and tipped major economies into recession.

The U.S. economy contracted at its fastest pace in seven years in the third quarter as consumer spending plunged to a 28-year low, data showed on Tuesday, raising the spectre of a deeper recession.

In addition, German Finance Minister Peer Steinbrueck said that the German economy could contract by as much as 1 percent next year after official figures showed fading exports led the country into recession in the third quarter.

Analysts have been downgrading earnings estimates through the year, realizing that the macro environment has made their initial calculations far too optimistic.

"The over-optimism in the consensus earnings estimates is widespread across sectors," UBS strategist Nick Nelson wrote in a note, adding that, from a top-down perspective, he expected earnings to fall around 30 percent peak to trough across Europe.

• EU to Urge Short, Sharp Boost to Economy: Draft

Copyright 2008 Reuters. Click for restrictions.