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Europe: Shares rebound, helped by financials, commodity stocks

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[LONDON] European shares edged higher on Monday in a modest rebound after two straight weeks of losses, led by financials and commodity stocks.

The pan-European Stoxx 600 index, which had fallen to a six-week low on Friday, ended up 1 per cent. The Stoxx 600 remains down by 7 per cent so far in 2016.

A rise in financial stocks, which had slumped on Friday following a threatened US$14 billion fine on Deutsche Bank from US authorities, added the most points to European stock markets. Shares in banks HSBC, Intesa Sanpaolo and Santander rose between 1 and 2.5 per cent.

But Deutsche Bank fell 2.4 per cent, extending losses following an 8.5 per cent slump in the stock on Sept 16.

Analysts at US bank Citigroup said that, while battered bank stocks represented a tempting investment opportunity, buying into the sector would nevertheless represent the "world's biggest contrarian trade".

"History says 'Buy' but our key message is do not 'Underweight' the sector," said Citi analysts, led by Jonathan Stubbs, in a note to clients.

The Stoxx 600 Basic Resources index was the biggest sectoral gainer, up 3.4 per cent, helped by upbeat comments from Credit Suisse on optimism over iron ore and coal demand.

The broker raised its targets for BHP Billiton, Rio Tinto and Anglo American and upgraded its rating for Glencore to "outperform".

Firmer oil prices also propped up markets, with the Stoxx Europe 600 Oil & Gas index advancing 1.5 per cent.

Oil prices rose on Monday after Venezuela hinted that Opec and other major oil producers could agree to a market support deal and as clashes in Libya disrupted attempts to boost crude exports.

"Firmer oil prices are helping things a bit," said Rupert Baker, a European equity sales executive at Mirabaud Securities. "We're jagging around a bit at the moment on the European markets, with no clear direction. Last week was a poor one for Europe, and I'd still have a slight downwards bias on the markets," added Mr Baker, citing negative pressures from weak corporate earnings and an anaemic economic backdrop.