European shares posted a second day of gains on Wednesday buoyed by strong corporate earnings and on hopes sovereign debt deals would be reached on both sides of the Atlantic.
Fears political wrangling could see the US default, and that core Europe could be dragged further into that region's sovereign debt crisis have weighed so much that even a small amount of good news on both fronts was boosting shares, analysts said.
Banks led the rise for a second day, on a report the eurozone bailout fund could be used to buy secondary market bonds and extend credit to in-need countries. Dexia was the top gainer, up 8.6 percent.
Dexia and peers such as Intesa Sanpaolo, up 6.6 percent, and Commerzbank , up 6.3 percent, helped the STOXX Europe 600 Banks Index to its best one-day gain since Jan. 12. Banks contributed around a third of the FTSEurofirst 300's 1.3 percent rise to 1,091.11 points.
News of a plan by a group of US senators, dubbed the Gang of Six, to revive stalled debt talks and avert a default, was also supportive, analysts said.
The increase in investor risk appetite was reflected in a 4.7 percent fall in the Euro STOXX Volatility Index, although it remains at the higher end of its four-month range.
Lack of macro clarity, including the debt concerns, had "frozen" investor sentiment in July, Bank of America Merrill Lynch said in a global research report.
Fund managers surveyed in the report were consensus overweight on equities, commodities, technology and energy, underweight bonds, banks and utilities.
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