European shares ended higher for a third straight session on Wednesday as a 50 percent surge in Lloyds Banking Group (LLOY.L) boosted the financial sector that has struggled due to heavy toxic debt and massive writedowns.
Optimism that the new U.S. administration was moving quickly to stabilise the ailing banking sector and Wells Fargo's (WFC.N) announcement that it was maintaining its dividend and did not need more taxpayer funds also improved sentiment, analysts said.
The pan-European FTSEurofirst 300 .FTEU3 index ended 3.2 percent higher at 810.82 points, but is still down 2.6 percent this year after plunging 45 percent in 2008 on a credit crisis and an economic slowdown that threatens to become a slump.
"The greater transparency that we have seen from the banking sector in the course of the last few trading sessions alleviated some of the worst fears in the market and allowed the sector to rally," said Henk Potts, strategist at Barclays Stockbrokers.
British bank Barclays (BARC.L) helped the banking sector revival this week by saying that it had no need to raise capital and remained profitable despite an 8 billion pound ($11 billion) 2008 writedown. Its shares jumped 18.9 percent on Wednesday and have more than doubled this week.
Lloyds shares spiked as Citi analyst Tom Rayner said a full nationalisation of the bank would be "unnecessary and inconsistent with the stated aim of government," and upgraded his stance on the shares to "buy".
Royal Bank of Scotland (RBS.L) jumped 35.7 percent, BNP Paribas (BNPP.PA) climbed 20.8 percent and Deutsche Bank (DBKGn.DE) rose 22 percent. Fortis (FOR.BR) was up 12.8 percent after the bank said it had reopened talks with the Belgian government and BNP over the asset sales.
Investors awaited a statement from the U.S. Federal Reserve's monetary policy-setting Federal Open Market Committee later on Wednesday.
"There are some hopes the conclusion of the FOMC meeting this evening is going to give us further details on what is happening with U.S. quantitative easing and whatever plans there may be for the proposed bad bank," said Jim Wood-Smith, head of research at Williams de Broe.
Across Europe, the FTSE 100 index .FTSE, Germany's DAX .GDAXI and France's CAC 40 .FCHI were up 2.4-4.5 percent.
