Banks lead Europe shares higher; ECB raises rates

* FTSEurofirst 300 index gains 0.4 percent, led by banks

* ECB raises rates, BoE holds, both as expected

* Portuguese bank stocks rise after country seeks bail out

* For up-to-the-minute market news, click on [STXNEWS/EU]

By Brian Gorman

LONDON, April 7 (Reuters) – Banks led European shares to
their highest level in nearly a month on Thursday as strategists
said interest rate rises would not derail equities’ advance and
a bailout for Portugal would give stability.

The European Central Bank raised its key interest rate by 25
basis points to 1.25 percent, tightening policy as expected to
counter firming price pressures in the euro zone.

“Many investors believe that today is not only the day that
the ECB is hiking its rates, but also the beginning of a whole
line of rate hikes this year,” said Markus Huber, senior Trader
at ETX Capital.

“In countries like Germany, where the economy is growing
strongly, a rate hike is likely to only have a moderate impact.
In contrast, countries like Portugal are likely to feel a strong

Attention will now switch to the ECB press conference where
investors will look for hints on further tightening.

The Bank of England earlier kept interest rates at a record
low of 0.5 percent, also as expected.

At 1127 GMT, the pan-European FTSEurofirst 300 (.FTEU3: Quote, Profile, Research)
index of top shares was up 0.4 percent at 1,152.01 points and
had hit 1,153.04, the highest in nearly a month.

Banking stocks were among the best performers, with the
STOXX Europe 600 Banks index (.SX7P: Quote, Profile, Research) gaining 1.8 percent.

Portugal’s Millennium bcp (BCP.LS: Quote, Profile, Research), Banco Espirito Santo
(BES.LS: Quote, Profile, Research) and BPI (BBPI.LS: Quote, Profile, Research) gained between 4.2 and 5.3 percent
after Portugal requested financial aid from the European Union,
outperforming the country’s PSI 20 index (.PSI20: Quote, Profile, Research), which was 1.3
percent higher.

Other banks to rise included BNP Paribas (BNPP.PA: Quote, Profile, Research), Banco
Santander (SAN.MC: Quote, Profile, Research) and Credit Suisse (CSGN.VX: Quote, Profile, Research), up between 2.5
and 3.4 percent.

The fall of another euro zone domino after Greece and
Ireland focused attention on Madrid, though analysts say Spain’s
financial position is improving.

Spain vowed on Thursday it would not follow ailing neighbour
Portugal in seeking a European bailout. A successful Spanish
bond auction suggested markets do not immediately fear
contagion. [ID:nLDE7360Y7]

Strategist remained upbeat on equities.

“It’s all heading in the right direction. The debt markets
are stable on the back of the Portuguese bailout. I think that’s
a pretty good result,” said Dean Tenerelli, fund manager at T
Rowe Price, which manages $440 billion.

“And the news yesterday on the capital raising for the
financials (Commerzbank (CBKG.DE: Quote, Profile, Research) and Intesa Sanpaolo (ISP.MI: Quote, Profile, Research))
reassures the market that Europe is dealing with the banks.”

He added that investors would not be troubled by the ECB
raising rates, and were already expecting further rises. “The
markets are not pricing in rates at 1.25 pct going forward. As
long as the increases are slow and steady, that’s fine for
(Additional reporting by Josie Cox; Editing by David Cowell)

Banks lead Europe shares higher; ECB raises rates