European shares rose by midday on Wednesday, led by banks on hopes a deal for Lloyds TSB to take over HBOS would go through, while investors eyed a U.S. Senate vote to salvage a banking bailout plan.
Miners tracked metal prices higher and defensive drugmakers rose, but auto stocks fell sharply, led by Daimler and Porsche.
By 1120 GMT the FTSEurofirst 300 index of top European shares was up 0.8 percent at 1,072.17, adding to its 1.6 percent gain on Tuesday.
However, the index has lost 29.2 percent this year.
"Today is lacklustre. People are on the sidelines, healing their wounds as far as possible, waiting for the next storm," said Giuseppe Amato, strategist at Lang & Schwarz in Germany.
"If they (U.S. legislators) don't pass the bailout, the direction is clear."
Banking stocks moved erratically, but by midday were again the top-weighted risers on the index.
HBOS surged 27 percent on expectations its takeover by Lloyds would go through on the existing terms. Lloyds rose 15 percent.
A person close to investment firm Standard Life Investments, a top investor in Lloyds TSB and HBOS, told Reuters the firm supported the planned takeover of HBOS under the terms originally announced..
Anglo-Irish Bank was up 18 percent extending strong gains from Tuesday, when the Irish Government moved to guarantee bank deposits.
Royal Bank of Scotland was down 1.1 percent and HSBC was up 1 percent.
However, shares in UniCredit were suspended limit down on worries that it is suffering from the global meltdown in the sector. The shares later resumed trading and fell 8 percent.
"In Italy, there are now worries that the storm is coming," Amato said.
The U.S. Senate will vote late on Wednesday on a new version of the $700 billion bailout package for Wall Street, rekindling hopes that the credit crisis can be stemmed before claiming yet more banks and causing further damage to the global economy.
Across Europe, the FTSE 100 index was up 1.7 percent, Germany's DAX was down 0.1 percent and France's CAC 40 was 0.6 percent higher.
US futures pointed to a lower opening on Wall Street with the S&P, Dow Jones and Nasdaq all 0.6 to 0.7 percent lower.
MINERS GAIN, LONMIN ASIDE; AUTOS SLUMP
Gold rose 1 percent in Europe as a slightly softer dollar encouraged bargain hunting after the previous session's DIP OF more than $30, with investors seeking safety in the metal from economic turmoil.
Among other precious metals, silver and platinum also rose, as did base metals such as copper.
Anglo American and Eurasian Natural Resources Corp. rose 4.1 and 7.7 percent respectively.
BHP Billiton rose 3.2 percent and Rio Tinto rose 5.8 percent after Australia's competition watchdog cleared BHP's proposed around $114 billion bid for Rio, saying it was unlikely to substantially lessen competition..
But Lonmin fell 18 percent after Xstrata dropped plans to make a full offer for the group. Xstrata was up 6 percent.
Pharmaceutical shares rose as investors sought defensive cover from turmoil in the markets. Roche was up 2.4 percent, after Helvea reinitiated coverage with a "buy" rating. It also issued a "buy" on Novartis, which was up 0.9 percent.
Automobile stocks took most points off the FTSEurofirst 300, and were the worst performer in Europe.
Daimler fell 6.9 percent on market talk that the group was about to issue a profit warning, which the company denied.
Porsche slumped 8.6 percent after the group reported that full fiscal-year revenue and unit sales stagnated at its core sports cars business amid a softening economic environment, declining to give a forecast for the current year.
Volkswagen, Renault and Peugeot fell 2.5 to 3.6 percent.
