(Refiles to fix Reuters Instrument code for Volkswagen)
* FTSEurofirst 300 ends 2.06 percent higher
* Banks rally ahead of U.S. housing market rescue bill
* Autos soar on strong results and a fall in oil
By Patrizia Kokot
LONDON, July 23 (Reuters) - 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 <>
closed 2.06 percent higher at 1,188.99 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 <.SX7P> soaring 6.2
percent.
HBOS <HBOS.L> rallied 16.8 percent amid trader talk that
Spain's BBVA <BBVA.MC> had cast an acquisitive eye on the
British lender. Both banks declined to comment.
Other big advancers included Barclays <BARC.L>, up 11.8
percent, Credit Agricole <CAGR.PA>, up 7.4 percent, and Credit
Suisse <CSGN.VX>, 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 1930 GMT on a major housing
market rescue bill, including a plan to bolster mortgage finance
giants Fannie Mae <FNM.N> and Freddie Mac <FRE.N>.
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.
"What we need to see is that extra line to commercial banks
or fringe banks which were crowded out by Freddie Mac and Fannie
Mae and then had to go to the subprime market. They are only
getting support if they are deemed essential for the system and
banks such as Indymac were not essential and had to pay the
price," he added.
Across Europe, the FTSE 100 <> ended 1.6 percent
higher, Germany's DAX <> rose 1.45 percent and France's
CAC <> jumped 1.9 percent.
AUTOS RALLY ON STRONG RESULTS
Automotive stocks starred throughout the day following
strong results from Volkswagen <VOWG.DE>, Peugeot <PEUP.PA> and
Fiat <FIA.MI>.
The DJStoxx European Automotive index <.SXAP> rallied 5.1
percent, with Volkswagen up 6.9 percent, Peugeot rising 9.2
percent and Fiat soaring 13.7 percent.
"The industry is hoping that the weakness we have seen in
May, June and July can be offset by cost reductions and new
models," said Albrecht Denninghoff, an analyst at BHF Bank in
Frankfurt.
Whether these measures can continue to support the sector is
however questionable, according to Cantor's Stephen Pope.
"I don't buy into the longevity of the lift," said Pope.
"If you look at Peugeot, they had strong sales but what
discounts did they have to offer? The cost reductions were also
one-off items that won't be carried through to the second half
which is normally more difficult," he added.
A drop in the price of crude for the third consecutive
session further lifted autos as well as airline stocks such as
Air France-KLM <AIRF.PA>, up 6 percent, British Airways <BAY.L>
up 7 percent and Deutsche Lufthansa <LHAG.DE>, which gained 4
percent.
Vague talk resurfaced that Lufthansa had cast an acquisitive
eye on Scandinavian airline SAS <SAS.ST> on the back of an
article in daily Borsen.
SAS shares surged 18.11 percent.
The continuing decline in the price of oil also helped
maintain hopes that the peak in crude has been passed, leading
to a cut in inflation expectations in the coming quarters and
lowering the probability of interest rate hikes.
"It is very encouraging to see spot prices (for crude) fall
now and it's a good signal as to where CPI/PPI will be both in
Europe and the U.S. when we get to the third quarter," said
Stephen Pope.
(Reporting by Patrizia Kokot; Editing by Richard Hubbard)
