Banks Lead Euro Shares Higher for Fifth Session

European shares closed higher for a fifth consecutive day on Monday led by a banking sector buoyed by news that Barclays had discussed divesting a unit and it was trading strongly.

The pan-European FTSEurofirst 300 index of top shares was up 2.7 percent higher to close at 720.88 points. It is still down 13.6 percent in 2009.

"The market is going up as fundamentally people are starting to think about an economic recovery and a recovery in profits, and profits expanding as opposed to profits contracting," said Darren Winder, strategist at Cazenove.

"But, there is nervousness about whether this can last. This is a strong rally, but the corporate and macro newsflow is still quite poor so understandably people are questioning whether we see some retrenchment of these gains.

We are probably going to run into some profit-taking in the near term." Banks added the most points to the index.

Barclays soared 23 percent after it said it had discussed selling its iShares unit and had enjoyed a strong trading performance so far this year.

HSBC, BNP Paribas, Societe Generale, Banco Santander were up 4.1-9.3 percent. The DJ Stoxx bank index is still down 23 percent this year.

Banks were also supported by comments from US Federal Reserve Chairman Ben Bernanke on Sunday when he said he saw the US economic decline moderating and recovery beginning in 2010, but risks remained.

Drugmakers were also higher. Novartis, GlaxoSmithKline and SanofiAventis were up 2.6-6 percent.

Inflation Data Supports Stocks

Also supporting equities was data that euro zone inflation rose last month, but with economists predicting price growth would fall again in March and forecasting another ECB rate cut in April.

Eurostat said prices in the 16 countries using the euro rose an expected 0.4 percent month-on-month in February for a 1.2 percent year-on-year gain, up from 1.1 percent in January -- confirming its earlier annual estimate.

Inflation is normally negative for stocks, but in the current environment investors fear deflation more and inflation could be a sign growth is returning.

"During the course of next year, inflation is likely to settle at levels comfortably below 2 percent as rising economic slack makes its presence felt," Fortis economist Nick Kounis said, adding: "The favorable medium-term outlook suggests that the ECB has more room to ease monetary policy further."

Italy's Banco Popolare was up 1 percent, having recovered from an earlier fall of 12 percent after saying it would launch a buyout offer for affiliate Banca Italease and delist it as part of a reorganization.

Linde lost 0.3 percent after the world's second-largest industrial gases supplier, scrapped its 2010 profit goals and said it would speed up cost cuts to counter the impact of the economic slump.

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