European stocks reversed losses on Monday, helped by bank shares as news of UBS's capital injection and a $10 billion writedown shed more light on the sector's exposure to the troubled US subprime mortgage market.
Also buoying the mood, Lafarge, the world's biggest cement maker, surged 11 per cent as investors cheered its acquisition of Egypt's Orascom Cement for 8.8 billion euros, a deal that will boost Lafarge's exposure to emerging markets.
By 1053 GMT, the FTSEurofirst 300 index of top European shares was up 0.4 per cent at 1,545.04 points. Europe's benchmark index is up 4.2 per cent so far in 2007, on track to record its worst yearly performance since 2002.
Philips was a standout gainer, rising 5 per cent after two US hedge funds said they want to talk to the firm on its operating performance and capital structure, the latest Dutch company to be targeted by activist shareholders.
UBS gained 2.5 per cent after unveiling $10 billion in fresh subprime writedowns and saying it had obtained an emergency capital injection from a Singapore government entity and an unnamed Middle East investor.
"If you look at where banking stocks are now on the year, you see that the panic movement has already happened," said Romain Boscher, head of equity management at Groupama Asset Management.
"The question is how big the subprime-related writedowns are and if a capital injection is necessary. The size of the loss is huge but that's what people had expected, and it comes with a capital injection as a solution, as we also saw with Citigroup."
Deutsche Bank rose 1.8 per cent, BNP Paribas put on 1.3 per cent and CS added 3.4 per cent.
The DJ Stoxx European banking index, which was up 1 per cent on the day, has lost 12 per cent so far this year, as fears that a debacle in the US subprime mortgage market as well as tight credit conditions would hit banks' profits.
On the year, UBS is down 21 per cent, RBS down 27 per cent and Deutsche Bank down 9 per cent.
"There has recently been a pause in the slump in banking shares as a lot of negative news have already been priced in, but we don't have the feeling that the bleeding is completely over," said Jean Claude Petit, head of equities at Barclays Wealth France.
Around Europe, Germany's DAX index was up 0.3 per cent, the UK's FTSE 100 index eased 0.1 per cent and France's CAC 40 rose 0.1 per ent.
Rio Tinto, the target of an offer from BHP Billiton, fell 0.6 per cent.
The Daily Telegraph newspaper reported that investment group Blackstone is planning a counterbid for Rio Tinto, with a consortium believed to include a Chinese sovereign wealth fund.
UK newspapers said on Saturday Brazilian miner Vale has hired bankers to consider a bid for UK-listed rival Xstrata. Xstrata tacked on 0.3 per cent.
On the macro front, investors braced for an interest rate decision by the U.S. Federal Reserve due on Tuesday.
The Fed is widely expected to cut rates by 25 basis points, and investors will comb the accompanying statement seeking clues on the outlook for rates. (REUTERS)