Europe Markets

European Stocks Close Higher; Volatility Ahead

European stocks closed higher Thursday, with investors shrugging off a surprise drop in U.S. new home sales and weaker U.S. economic growth data.

U.S. indexes were lackluster following the numbers but in positive territory as jobs data was stronger than expected.

The London FTSE-100, spacer Paris CAC-40 and Frankfurt DAX were higher, with the FTSE CNBC Global 300 also in positive territory.

Some economists said the new home sales report may lead to more rate cuts by the Federal Reserve next month.

"Today's new home sales report is a good place to start looking for proof that the credit crunch is suffocating the already awful US housing market," Dimitry Fleming from ING Bank wrote in a research note.

"It is getting increasingly difficult to sense a pulse in this market. Let's hope Fed rate cuts manage to revive sales soon," he said.

Banking Sector Rallies Again

Earlier in the session, European investors wobbled on news the European Central Bank lent $5.5 billion at a penalty rate to an undisclosed borrower Wednesday.

Details of the emergency borrowing came as investors digested comments from the ECB President Jean-Claude Trichet, who said excessive swings in foreign exchange levels are not good for growth.

However, spirits were lifted on news that euro zone corporate borrowing rose to a record high in August, a sign that firms were confident the economy will remain strong.

The banking sector was among the best performers with speculation about a possible takeover of beleaguered U.K. mortgage lender Northern Rock still running high. But economists warned the two-day banking rally may be nearing an end.

"It wouldn't be too surprising if investors were putting cash in their pockets for the weekend," Joshua Raymond, sales trader at Finspreads, told "European Closing Bell."

"Expect some volatility tomorrow, even though it's Friday," he added.

Stock market consolidation overcame another hurdle with Sweden's Financial Supervisory Authority (FI) saying U.S. exchange Nasdaqwas qualified to be an owner of Nordic exchange firm OMX.

In corporate news, British Airways said it would spend $8.2 billion on updating its fleetas it announced an order for 12 Airbus A380s and 24 Boeing 787 airliners.

Shares of British Airways closed 4.13% higher, while shares in Airbus parent EADS were flat.

On the earnings front, insurance market Lloyd's of London reported a 34% spike in pre-tax profit for the first half, citing high premiums and low claims as a boost.