European stocks closed broadly higher Wednesday, despite a warning from Federal Reserve Chairman Ben Bernanke that the U.S. economy was set to shrink and a recession was possible.
Banks remained the stand-out gainers, following the paradoxical writedown-led rally in the previous session, but upward momentum was more subdued.
Gains were also limited by a fall in auto stocks after data showed a 12 percent drop in U.S. car sales in March, hit by shaky consumer confidence, high fuel prices and concern that the housing market downturn could spread into a full recession.
The Dow Jones STOXX banking sector index climbed 2.5 percent on hope that the worst of the credit crunch is over.
Barclays and Royal Bank of Scotland both rose about 5 percent. Credit Agricole gained 2.3 percent, while Commerzbank surged 6 percent.
Tuesday's $19 billion writedown announcement from UBS reinforced the view that the banks are aggressively cleaning their books of soured investments tied to U.S. subprime mortgages.
Lehman Brothers further reassured markets after successfully being able to raise $4 billion in capital.
Staying in the financial sector, HSBC may use the recent credit crisis to buy U.S. banking assets at depressed levels, the South China Morning Post reported. The London-listed bank will not be pulling out of the U.S., the report also said, citing Chief Executive Michael Geoghegan. Shares of HSBC were only 0.5 percent higher, in contrast to the overall sector.
In corporate news, French catering giant Sodexosaid it is confident for the full-year after it reported a 3.8 percent rise in first-half revenue.
Dutch staffing company Randstad launched its $5.2 billion bid for Vedior, seeking to create the world's second-biggest employment company after Adecco, according to Reuters.
And the European Central Bank alloted 25 billion euros ($39.07 billion) for a six-month period, in the hope of easing conditions in the euro zone interbank lending market.
- Reuters contributed to this report.