European Stocks Close Higher On Hopes for U.S. Rate Cut

European stocks closed higher on rising expectations of a cut in U.S. interest rates.

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

U.S. shares held on to gains earlier in the day even though a speech by Federal Reserve chairman Ben Bernanke did not offer any clues on rates movements at the Fed's meeting next week.

Investors also were encouraged by remarks by European Central Bank president Jean-Claude Trichet that the European financial system was sound despite the current market correction.

Investors' spirits also were lifted by OPEC's decision to raise output by 500,000 barrels per day, even if oil prices jumped after the announcement as some market players had speculated that the cartel may raise output by as much as 1 million bpd.

Higher oil prices added to concerns weighing on automakers at the start of the Frankfurt Motor Show, as fears of a slowing U.S. consumer looked set to dominate the green-focused event.

However, the auto sector posted strong gains in Europe, with shares of Germany's BMW rising nearly 2% after its CEO said the subprime crisis had no impact on its U.S. business and made bullish predictions on sales.

Shares in DaimlerChrysler were 1% up while Porsche shares jumped 3.3% after its CEO said the company wants to boost its share in Volkswagen.

The battered banking sector seemed to rebound, with shares in Europe's biggest banks firmly in the green. Deutsche Bank shares rose 1.71% while French BNP Paribas gained 1.6%.

Shares of U.K. bank Barclays jumped 4.7% after comments by president Bob Diamond on Monday suggested the bank's chances of taking over ABN Amro were slimming.

In other corporate news, shares of clothes retailer Next jumped 3.4% on a forecast-beating first-half profit.