European shares rose in thin midday trading on Monday, as heavyweight energy stocks added most points to the index, supported by higher oil prices that were boosted by the conflict between Israel and Hamas.
At 1135 GMT, the FTSEurofirst 300 index of top European shares was up 0.9 percent at 810.64, after closing 0.5 percent lower in the previous trading session.
The index is down more than 5 percent this month, and about 46 percent this year, hurt by a credit crisis that led major economies around the world into a recession.
U.S. crude for February delivery was up 7.6 percent at $40.56 a barrel by 1138 GMT, after a session high of $42.20, while Brent crude oil was up 8 percent at $41.45 a barrel after a session high of $43.18.
Prices were boosted after violence between Israel and Hamas served as a reminder of tensions that could threaten crude supplies from the Middle East. "The Gaza conflict is boosting oil prices in the short-term but unless the crisis deepens, this trend can quickly be reversed," said Joerg Rahn, senior economist at MM Warburg.
"I think what we are seeing is a small year-end rally and it looks as if we could stay in positive territory for today. However, this might not be sustained next year."
Oil and gas companies added most points to the index, with BP, gas producer BG Group and Tullow Oil adding between 3.4 and 3.8 percent.
Miners also gained on the back of firmer metals prices. BHP Billiton, Anglo American, Vedanta Resources, Lonmin, Kazakhmys, Xstrata, Antofagasta and Rio Tinto rose between 3.8 and 7.6 percent.
Across Europe, the FTSE 100 index was 2.4 percent up, Germany's DAX gained 2.1 percent and France's CAC 40 was 1.2 percent up.
BANKS UP, INSURERS DOWN
Analysts said the market was likely to remain choppy.
"The trading over the Christmas period has been somewhat disappointing and therefore, in the short term, the reality is that markets are going to remain volatile and continue to be under pressure," said Henk Potts, equity strategist at Barclays Stockbrokers.
"There is also an expectation that corporate profitability is going to be under pressure. We think it's going to drop by 20 percent during the course of 2009," he added.
Banks advanced, with Deutsche Bank, UBS, Societe Generale and Commerzbank up between 1.9 percent and 6.9 percent.
Royal Bank of Scotland gained 1.4 percent. The bank said on Sunday it was pursuing a disposal of its insurance operations despite a newspaper report which said the government-controlled bank was preparing to abandon the plan.
Insurers were under pressure, with Standard Life falling 1.7 percent and Zurich Financial Services Group down 0.5 percent.
Muenchener Rueckversicherung, the world's largest reinsurer by revenue, said the total costs associated with natural catastrophes in 2008 will be about $200 billion euros, the third highest on record.. Shares in the company were down 0.8 percent.
Pharmaceuticals rose, with AstraZeneca rising 5.1 percent, Shire adding 2.4 percent and GlaxoSmithKline rising 1.1 percent.
Novartis AG was up 0.9 percent. The Swiss drugmaker said it will license a programme of vaccines from U.S. group AlphaVax against cytomegalovirus (CMV) infections, which can cause disability in newborn babies.
