Financials lead European shares to month’s high

* FTSEurofirst 300 index gains 0.3 percent

* Portuguese bank stocks rise after country seeks bail out

* ECB interest rate decision eyed, rise expected

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

By Joanne Frearson

LONDON, April 7 (Reuters) – European shares hit a month’s
high on Thursday, led by financials after Portugal said it would
seek financial aid, but traders were wary that the bailout may
not signal the end of the euro zone sovereign crisis.

Portugal is the third euro zone country to seek a bail out
and investors are now watching to see if Spain could be next,
although the Spanish Economy Minister Elena Salgado ruled

By 0900 GMT, the pan-European FTSEurofirst 300 (.FTEU3: Quote, Profile, Research)
index of top shares was up 0.3 percent at 1,150.86 points after
earlier hitting a month’s high of 1,151.50 ahead of an interest
rate decision by the European Central Bank.

“Portugal was so much expected,” Lothar Mentel, chief
investment officer at Octopus Investments, which manages 2.5
billion sterling ($4.07 billion) said. “Now there is more focus
on Spain, the pressure is not really going to go away.”

Mentel also said he expects there to be a shift towards
value stocks from growth in the next half of the year if the
global economies slow.

Banking stocks featured among the best performers, with the
STOXX Europe 600 Banks index (.SX7P: Quote, Profile, Research) gaining 1.6 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 3.7 to 4.6 percent on the aid
request and outperforming Portugal’s PSI 20 (.PSI20: Quote, Profile, Research) which was 1
percent higher.

Elsewhere in the periphery, Spain’s IBEX 35 (.IBEX: Quote, Profile, Research) was
underperforming the broader FTSEurofirst index and was only up
0.1 percent recovering from earlier falls.

“We’ve seen some selling in Spanish banks” said a head of
sales trading at a European investment bank. “Attention has just
switched to the state of the property market in Spain, the
amount of writedowns the banks need to take, and that they’re
not out of the water yet.”

BBVA (BBVA.MC: Quote, Profile, Research) was up 0.6 percent, but underperforming the
STOXX Europe 600 Banks index.

Elsewhere on the Spanish market, wind turbine maker Gamesa
(GAM.MC: Quote, Profile, Research) fell 3.2 percent after UBS downgraded it to “sell” from


Later in the session, investor attention will be on the ECB
interest rate decision due at 1145 GMT.

A Reuters poll said the European Central Bank is likely to
raise interest rates as it focuses on controlling inflation,
though it will give few clues about when the next move will
come, fearful not to hurt the euro zone’s struggling
peripheries. [ID:nSLAUEE7RO]

“It looks like the market is pricing in a rise from the
ECB,” said Will Hedden, sales trader at IG Index.

Before the ECB rate decision, Britain’s central bank has its
announcement at 1100 GMT.

The Bank of England is likely to wait until the third
quarter before hiking interest rates, with the consensus
suggesting most Monetary Policy Committee members would want to
see further evidence of the economy strengthening.

Across Europe, the FTSE 100 (.FTSE: Quote, Profile, Research) index was up 0.04
percent, Germany’s DAX (.GDAXI: Quote, Profile, Research) was up 0.01 percent and France’s
CAC 40 (.FCHI: Quote, Profile, Research) gained 0.2 percent.
($1=.6137 Sterling)
(Additional reporting by Simon Jessop; Editing by Hans Peters)

Financials lead European shares to month’s high