Euro Stocks Gain on Banks, Auto Surge

European shares ended more than 2 percent higher on Wednesday as banks enjoyed their best day in four months, ahead of a vote on a U.S. housing market rescue bill, while autos gained on strong earnings and oil fell.

The FTSEurofirst 300 index of top European shares provisionally closed 2.1 percent higher at 1,189.65 points, after rising as much as 2.3 percent earlier in the session.

Banks, which are still down 30 percent since the start of the year, recorded their biggest one-day gain since mid-March with the DJStoxx European banking index soaring 6.2 percent.

HBOS rallied 16.8 percent amid trader talk that Spain's BBVA had cast an acquisitive eye on the British lender. Both banks declined to comment.

Other big advancers included Barclays, up 11.8 percent, Credit Agricole, up 7.4 percent, and Credit Suisse, up 7.1 percent.

"Anything that supports the mortgage market is encouraging," said Stephen Pope, Chief Global Market Strategist at Cantor Fitzgerald Europe, adding that further support was needed for commercial banks.

All eyes were on the U.S. House of Representatives, which was expected to vote some time after 8:30 pm London time on a major housing market rescue bill, including a plan to bolster mortgage finance giants Fannie Mae and Freddie Mac.

In addition, the White House confirmed that President George W. Bush would sign a housing rescue package into law despite opposing part of the legislation.