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European shares rise as bank profits beat forecasts

EUROPEAN shares rose on Tuesday, bolstered by forecast-beating results and by expectations of more central bank stimulus - a key factor behind an 11-month run of stock market gains.

BP gained 2.7pc after a strong performance in the oil major's trading division lifted profits.

Overall, banks were the best performing sector, up 1.2pc after UBS, Deutsche Bank and Lloyds all reported better first-quarter results than anticipated.

"Due to lower loan provisions, banks are actually able to beat expectations on earnings. Now we are on a path where the profitability of global banks is improving," said Peter Garnry, head of equity strategy at Saxo Bank.

"I would expect financials to do well this quarter, probably ... the best sector, and also to do well next quarter."

Prior to Tuesday's results, some 63pc of European financial services firms that have reported had met or beaten earnings expectations - the third best sector after utilities and healthcare and compared to a cross-sector rate of just 50 percent, according to Thomson Reuters StarMine data.

Banks added 0.9 points to the pan-European FTSEurofirst 300 index, which was up 0.4pc at 1,207.04 points in early trade taking its gains during April to 1.5pc and heading for an 11th consecutive monthly rise.

The sector has also benefited from expectations of an interest rate cut from the European Central Bank on Thursday. Such bets could be further stoked in case of a weak print on euro zone April inflation.

Lower than forecast numbers from Germany and Spain earlier this week have prompted economists at Societe Generale to cut their view on inflation to 1.3pc year-on-year from an in-line-with-consensus 1.6pc.

"Such an outcome should further harden market expectations of a rate cut ...but we reiterate our view of no action, as we think a cut would achieve little," they wrote in a note.

Technical charts also showed scope for more equity gains, with the outlook brightened by the EuroSTOXX 50 index notching up its highest close in 1-1/2 months on Monday.

Jean-Charles Gand, senior market strategist at BBSP, said charts showed 3,479 points as the next potential target for the euro zone blue chip index, within six to 12 months.

"Only a drop below 2,417 would cancel this target. So, downside risk is roughly 300 points, and a potential reward is 762 points. This is still a nice risk/reward ratio," he said in a note.