European shares ended sharply higher on Friday after better-than-expected earnings from U.S. bank Citigroup spurred a rally in financial stocks.
The FTSEurofirst 300 index of top European shares closed 1.56 percent higher at 1164.19 points, having fluctuated between 1133 and 1164 during the day. The index gained around 3.2 percent during the week, but has lost about 23 percent so far this year.
Citigroup , the largest U.S. bank, posted a smaller than expected $2.5 billion loss, sending the DJStoxx European banks index 4.9 percent higher.
UBS jumped 7.6 percent and Royal Bank of Scotland soared 9.6 percent.
"Citigroup created a huge amount of positive excitement for the very reason that (the results) are not as bad as expected and the markets gave them the benefit of the doubt," said Howard Wheeldon, senior strategist at BGC Partners.
The oil price holding around $130 a barrel and banks gaining ground for the third consecutive trading day after a string of better-than-expected earnings raised hopes that the worst of the credit crunch may be over.
"I think we are well into the second half of this bear market but there are still plenty of shocks to come," BGC Partner's Wheeldon added.
After banks, pharmaceuticals were prominent gainers on Friday following the announcement of a $7.5 billion acquisition of generic drug maker Barr by Teva Pharmaceutical Industries. The deal implies a 42 percent premium to Barr's closing price on Wednesday and prompted market watchers to wonder whether pharma stocks are undervalued.
Stada rose 2.5 percent, Roche added 1.6 percent and Sanofi-Aventis gained 2.1 percent.
Earnings in Europe were largely confined to the Nordic countries, with Swedish Match adding 5.5 percent after the tobacco products maker released a solid set of second-quarter results.
SBM Offshore jumped 7.5 percent as the Dutch maritime engineering group got two orders worth a combined $230 million and could get a bigger contract in 2009, according to analysts.
Spain's Union Fenosa surged 10 percent, following Thursday's 16 percent advance, after core shareholder ACS confirmed there are several interested buyers for its 45.3 percent stake.
A profit warning from Belgian supermarket chain Delhaizedented food retailers and producers.
Delhaize lost 8.2 percent, while peers Ahold and Carrefourwere down 3.5 percent and 0.2 percent respectively and Tescofell 3.3 percent.
L'Oreal fell 2.07 percent after issuing a warning on sales. Nestle, a large shareholder in L'Oreal, fell 2.8 percent.
Other notable decliners included Swedish engineering group Sandvik, which lost 2.6 percent as its second-quarter pretax profit and order intake missed expectations.
Miners also weighed on the market as metal prices eased.
Anglo American was down 1.1 percent, Rio Tinto ended 1.3 percent lower and BHP Billiton lost 1.8 percent.