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Oil shares and Nokia lift European equities

A sign of Standard Chartered bank is seen at its headquarter in the City of London, Tuesday, Aug. 7, 2012.

LONDON: European shares rose to their highest level in more than four months on Tuesday, as firmer oil stocks and a surge in telecoms group Nokia offset a slump in UK bank Standard Chartered after becoming embroiled in a scandal.

The FTSEurofirst 300 index closed up 0.8 percent at 1,094.19 points, its highest closing level since ending at 1,105.61 points on March 19.

The Euro STOXX 50 index rose 1.7 percent to 2,440.24 points, its best finishing level since closing at 2,458.98 points on April 3.

The STOXX European oil and gas index was the best-performing European equity sector, rising 2.3 percent after oil prices rose due to a likely drop in North Sea production.

This enabled energy stocks such as France's Total and Britain's BP to rise, offsetting the impact of a 16.4 percent fall in Standard Chartered after New York's top bank regulator threatened to remove its state banking license.

The New York State Department of Financial Services (DFS) said Standard Chartered hid $250 billion in transactions tied to Iran. Standard Chartered said it did not believe the DFS' order presented a "full and accurate picture of the facts."

"We're more enthusiastic about oil stocks than banks. Higher oil prices will be beneficial and equity markets are continuing to be supported by the fact that central banks appear ready to ride to the rescue," said Cheviot Asset Management partner David Miller.

European equity markets have rallied since European Central Bank chief Mario Draghi said on July 26 that the ECB would do "whatever it takes" to protect the euro from the region's sovereign debt crisis, which led to a bailout of Greece.

Investors expect the ECB to renew its purchases of European government bonds to lower the borrowing costs of debt-ridden economies such as Spain and Greece, although any new measures would still have to first overcome potential political hurdles.

Germany's Bundesbank has opposed any fresh buying of government bonds by the ECB, but Cyrille Urfer, who heads up asset allocation at Swiss bank Gonet, said he had bought up more European equities over the last week, as he felt Germany's position would soon soften.

"We've added to our European equity holdings on the margins to get a bit more risk in the profile. The German rhetoric has eased a bit and has helped the markets adjust to the upside," said Urfer.

SCEPTICISM REMAINS OVER EQUITY RALLY

Finland's Nokia topped the FTSEurofirst 300's leaderboard, surging by 10.1 percent on speculation that it could launch new smartphones in early September before rival Apple unveils a next version of its iPhone.

The FTSEurofirst 300 index has risen around 5 percent since Draghi's pledge on July 26, but trading volumes have consistently come in at below-average levels, due to persistent doubts over whether policymakers will be able to agree on concrete measures to fix the European debt crisis.

Solo Capital Partners equity derivatives strategist Jiban Nath said he would back selling "call" options - where an investor bets on an asset price to rise - to buy "put" options, which would allow investors to cash in by accurately forecasting a future fall in an asset price.

"Given that the market has priced in any stimulus by the ECB and the European Union, the danger is that if the policy action is not substantial and meaningful there is likely to be a big correction," said Nath.

Darren Easton, director of trading at London-based Logic Investments, also said he would err on the side of caution by booking profits from selling shares on the back of the rally.

"I'm sceptical. We've been taking profits where we can," said Easton.

 

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