European Stocks Gain as Oil, Euro Eases

European shares ended higher on Wednesday as falling oil prices supported the broader market, a weaker euro underpinned automotive stocks and solid results from Wells Fargo lifted battered banks.

The FTSEurofirst 300 index of top European shares closed 0.5 percent higher at 1,115.97 points, having fallen as much as 1.6 percent earlier in the session.

A $5 drop in crude on the back of a surprise increase in U.S. inventories lifted airline stocks, with Air France-KLM rallying 7.8 percent, Lufthansa up 4.8 percent and British Airways up 6.9 percent.

Automotive stocks soared as the U.S. dollar strengthened against the euro after Federal Reserve Chairman Ben Bernanke told a U.S. House of Representatives panel that currency intervention may be warranted under certain conditions.

BMW was up 2 percent, Renault rose 7.4 percent and Peugeot added 4.6 percent.

Banks Rebound

Banks, the heaviest drag on the European market earlier in the day, ended higher after Wells Fargo reported unexpectedly strong quarterly results.

The DJStoxx European banks index rose 1.6 percent, with Barclays adding 2.4 percent and Fortis gaining 4.6 percent, and UBS rising 3.4 percent.

Alpha Trading asset manager Stefan de Schutter doubted the longevity of the turnaround witnessed in late trade.

"We were oversold earlier and this is a technical rally. The comments from Bernanke were a big push but in the end nothing has really changed," he said.

Andreas Huerkamp, a strategist at Commerzbank in Frankfurt, said there are some signs that the current downtrend is coming to the end.

"Depressed investor sentiment was, contrary to our expectations, not able to stop the current correction of equity markets," he said, adding that a VDAX of 26, as well as a put-call ratio of 1.10 are historic signals that the downward trend is losing momentum.

The VDAX-NEW volatility index, based on sell and buy options on Frankfurt's top 30 stocks, was down 3.7 percent at 26.76.

Huerkamp said that company earnings had shown a surprising resilience throughout the credit crunch, noting that "our economic-earnings-valuation-sentiment-model still indicates that the current dip should be the last dip in the current crisis."

Among companies reporting on Wednesday, Alstom jumped 8.5 percent after the French high-speed train and industrial power plant group posted solid first-quarter sales.

Oil Stocks Hit FTSE

Britain's commodity-heavy FTSE 100 ended down 0.4 percent, while Germany's DAX added 1.2 percent and France's CAC rose 1.3 percent.

Heavyweight oil groups BP, Total and Shell shed between 2.8 and 3.2 percent.

Germany's Deutsche Postbank slumped 7.3 percent amid fears that a three-way merger with Commerzbank and Allianz could fail and leave the retail bank stranded without a buyer or partner in its quest to expand its operations.

Other notable decliners included Norwegian fertilizer group Yara, down 7.2 percent amid worries over its outlook and concerns that consensus estimates may be too high, traders said.

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