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Europe: Financials help shares to hit 2-week high

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[LONDON] European equities climbed to a two-week high on Tuesday, with financial stocks gaining ground on mounting expectations of a possible US rate hike this year.

The European Banks index rose 1.8 per cent, the top sectoral gainer, helped by a 2.7 to 3.8 per cent rise in shares of Deutsche Bank, ABN Amro, Natixis and Credit Suisse.

Banks benefit from higher interest rates, which can boost margins. Although interest rates in Europe are likely to remain at ultra-low levels for an extended period, some European lenders have business in the United States and a US rate hike could help.

Investors are eyeing Friday's US non-farm payrolls data for any clues about the timing of a rate hike. "We have adjusted our forecast for the US economy downward after the unexpectedly weak second-quarter GDP figure.

In recent weeks, however, economic signals have been predominantly positive," said Robert Bergqvist, chief economist at SEB. "The US Federal Reserve will be alone in raising its key rate this coming December."

Banks helped the pan-European STOXX 600 to close 0.5 per cent higher, after rising earlier in the session to its highest level since mid-August.

Miners lost ground again as metals prices slipped following a rise in the US dollar on higher rate expectations. A stronger dollar makes metals costlier for holders of other currencies and lowers demand for raw materials.

Among some sharp movers, Germany's Wirecard jumped 3 per cent after Barclays raised its rating on the stock to"overweight" from "equal weight" and lifted its target price.

"Wirecard is not without controversy, but over the last decade it has built a strong strategic position both from a product and regional perspective and is well positioned in terms of our acquiring framework, in our view," analysts at Barclays said in a note.

The STOXX 600 Basic Resources index fell 3 per cent, making the sector the worst-performing in Europe, with shares in Anglo American, Rio Tinto, Fresnillo and Glencore falling 4.3 to 5.6 per cent.

Belgian investment holding company Ackermans & Van Haaren dropped 6.6 per cent after reporting a weak set of first-half results.