European shares rose by midday on Monday after hitting 6-week highs as a firmer dollar boosted automotive stocks and fighting between Russia and Georgia pushed up oil prices, and with them, oil shares.
By 1039 GMT, the pan-European FTSEurofirst 300 index was up 0.8 percent at 1,208.42 points, having hit its intra-day high of 1,210.79 points, its highest since June 26.
Auto stocks benefited as the euro, which last week suffered its biggest weekly fall since its 1999 inception, fell almost as low as $1.49 earlier on Monday as the downward technical momentum intensified before snapping back to above $1.50.
"A weaker euro/stronger dollar would be a welcome source of relief for a beleaguered auto sector," Morgan Stanley said in a note to clients.
"We highlight BMW as the most exposed to the dollar as a percentage of profit and with the most shallow hedging policy currently in place, creating the potential for more relief in 2009," the investment bank added.
The DJ Stoxx European car sector index was up 1.9 percent with BMW up 3.4 percent, Porsche up 3.1 percent and Daimler gaining 2.9 percent.
Daimler also rose after a report said Abu Dhabi Investment Authority (ADIA) was interested in buying a large stake in the car maker. Daimler declined to comment on the report.
Also on the upside were financial stocks, led by a 3.9-percent gain in Swiss bank UBS as markets welcomed news that the cost for a buyback of debt securities would not be more than $900 million.
"Such a burden is definitely not positive," said WestLB analyst Georg Kanders in a note. "However, one positive aspect is that this burden is already included in the roughly break-even result that UBS said it would produce for Q2."
UBS is due to report second-quarter earnings on Tuesday.
Kanders said he believed that the quality of the results would be better than anticipated and confirmed his buy rating.
The European bank sector rose 1.3 percent, also supported by a 13.5-percent gain in French bank Natixis as traders cited talk of short-covering in the stock and possible sovereign wealth fund interest.
DISRUPTED EXPORTS
Oil rose more than $1 on Monday, partly recouping the previous session's $5 decline as fighting between Russia and Georgia disrupted some exports from the Caspian region.
BP, Royal Dutch Shell and Total gained 1.3 to 1.8 percent.
Miners were in focus after Kazakhmys raised its stake in rival Eurasian Natural Resources (ENRC) to above 25 percent and Xstrata looked to raise more than 5 billion pounds to forge ahead with a hostile bid for Lonmin.
Kazakhmys was up 1.6 percent, Xstrata up 1.2 percent and Lonmin flat but ENRC tanked 6.9 percent after Kazakhmys said it had no immediate plans for a bid.
Russian stocks hit their lowest level for nearly two years on Monday, unsettled by the military conflict between Russia and Georgia.
Across Europe, Britain's FTSE 100 .FTSE was up 0.6 percent, Germany's DAX up 0.4 percent and France's CAC up 0.5 percent.
